Wednesday, July 11, 2007

Fallacies of the Sydney property market.

Much of the talk of housing affordability is just stupid politics.

Because of rocketing prices, purchasing a house in Sydney is harder than in the 17% interest years in the late 80s; we are witnessing the highest rate of bankruptcies since the boom times just before the last recession, piling truth into Keatings infamous characterisation of “the recession we had to have.”

As usual, Ross Gittens in the Herald has given a clear, succinct outline of the current situation. This involves differentiating between price rises in areas of high demand – close to the city, beaches and harbour – versus falling prices on the city fringes. Within the context of orthodox economics, it's simple supply and demand, of course. Subsidising first home buyers, extracting from superannuation for housing, and sharing equity with either banks or government are more like good politics than good policy, and all fuel price rises. Not that he presents especially useful policy for goverment, more that he debunks the bad.

Gittens: “'s the point so many people find hard to understand: anything you could do to make it easier for people to afford to pay the existing prices is likely to prove counterproductive.”

Read the article.

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