The Fix is In
In a previous post, I warned that:
The danger now is that the government implements another of its short-term political fixes ahead of this year’s federal election and re-tightens the rules [on foreign direct investment in residential property] rather than addressing the supply-side constraints besetting Australian residential property.
In the event, we have this:
FEDERAL and state governments have commissioned a working party of officials to hold a no-stone-unturned inquiry into all factors contributing to record house prices, as Labor senses the issue is becoming a political danger.
The inquiry, to deliver its first report within weeks, will examine sensitive areas such as tax breaks for negative gearing, land banking by developers, and whether grants to first home buyers push up house prices.
More wide-ranging than I expected, but also a waste of time, something the government is fast running out of ahead of this year’s federal election. As Christopher Joye notes, these issues have already been extensively studied and the policy solutions are well-known. The likely outcome is a short-term political fix designed to serve as a holding action ahead of the election. Do we really need an inquiry into whether grants to first home buyers push up house prices? Even Steve Keen and I agree on that. Did we really need a review by a former senior public servant to tell us that the home insulation program was a waste?
While the Prime Minister has an underserved reputation as a policy wonk, the reality is that he is what former Prime Minister Paul Keating would call a ‘policy bum’.
posted on 23 April 2010 by skirchner
in Economics, House Prices
(4) Comments | Permalink | Main
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Comments
Game over.
Foreign home buyers backflip
TIM COLEBATCH
April 24, 2010
THE Federal government will scrap its controversial new rules on foreign investment in real estate, and instead tighten both the rules and their enforcement to head off a damaging political storm.
In a stunning about-face, Assistant Treasurer Nick Sherry has announced that temporary residents will now have to seek approval from the Foreign Investment Review Board (FIRB) to buy any real estate in Australia.
Temporary residents will also be required to sell their Australian property when they leave Australia. And for the first time, the FIRB will be given the means to ensure that the laws are enforced.
In a surprising move, the crackdown will also target vendors and real estate agents. Senator Sherry said they would face civil penalties if they were involved in transactions that breached the Foreign Acquisitions and Takeovers Act. His spokesman could not explain how vendors and real estate agents are expected to know the immigration status of buyers.
The move comes barely three weeks after Senator Sherry denied that foreign investors were a factor in the Australian real estate market.
Posted by .(JavaScript must be enabled to view this email address) on 04/24 at 09:00 AM
Game over for what carbonsink? That’s just evidence of another quick fix that will do absolutely nothing to slow house price growth. Cooling off demand at the top end will require some combination of (1) a rapid 50-100 bp increase in the cash rate or (2) a 10%+ correction in equity markets. Either or both of these could occur over the next few months, but this rule change won’t do anything.
Posted by .(JavaScript must be enabled to view this email address) on 04/25 at 11:36 AM
Game over for the relaxation of the FIRB rules. Didn’t last long did it? No data, no inquiry, they just reversed it. There’s even a hotline where you can dob in foreign buyers!
As for cooling house prices, well, according to our host its all a supply side problem anyway, and no amount of brute force on the demand side can kill house prices.
Its largely a confidence thing anyway. 12 months ago we had ultra-low interest rates *and* a chronic housing shortage, but house prices were falling.
I don’t think a 100bps hike in rates will kill underlying confidence in the Australian economy. What will kill confidence in the Australian economy is a bursting of the China construction bubble. Can “Five guys in a room” manage to deflate it gently? Who knows.
Posted by .(JavaScript must be enabled to view this email address) on 04/26 at 08:17 AM
The government is nothing if not predictable.
Posted by skirchner on 04/27 at 09:49 AM