While a recent report might suggest Australians are the richest people in the world because of high housing prices, the reality is that the real beneficiaries of this boom are banks and lenders, Warwick Smith writes.
The report on the latest World Wealth, published by Credit Suisse last week shows that Australians are the richest people in the world (based on an average wealth). The biggest contributor to our wealth is in housing prices. This news was enthusiastically welcomed by economists and journalists.
Even the often wise Saul Eslake, Bank of America Merrill Lynch, suggests that this is a good sign, saying that “the rise in real estate prices tend to reduce inequality, because they are a big part of wealth middle class. ”
This is like saying that because the market price of a human heart has downloaded all that we are now rich. Housing price increases are actually beneficial only for those who own more than one house. If only the owner of a house, as if they had one heart, the circumstances in which you can truly enjoy rising prices are rare.
Homeowners would be rich on paper, but it means almost nothing for their welfare or material prosperity. For those who do not own a home but would like to, higher prices are in the best of all his companions.
The prices of the highest average house in Australia are largely driven by the prices of the capital city, mainly in Melbourne and Sydney. Many young people in these cities have abandoned the dream of owning your own home because the only way that is possible is so vaguely now live in suburbs with few amenities and hours of travel. Young families who manage to buy a house (rarely occur in one income) are forced to work more than they would like, leaving children in the care of children after school and when they prefer to spend time with them.
The real beneficiaries of rising real estate prices are the banks and other lenders. Most Australians spend a significant part of their income to pay interest to banks, either directly in their own mortgages or indirectly by their owners. Housing prices are higher, more income is captured by banks. He saddled our young people a lifetime of debt are not a cause for celebration, is a problem at
The policy of the present government is actively supporting the rise in prices of real estate investment by offering artificially attractive housing. Negative gearing and favorable treatment of capital gains (individuals pay taxes on only half of the capital gains earned money) distorts the investment market and makes speculation on land prices an investment option very interesting. Public policy should be the opposite. We must do everything for investment in productive economic activity and not speculation on asset prices. Housing construction is a productive activity, speculating on the price of existing homes, it is not.
From an economist’s point of view, there are many options to deal with the cost of housing which also would strengthen the Australian economy and reduce the likelihood of bubbles and recessions. These include the abolition of negative gearing and favorable treatment of capital gains and the increased use of property taxes.
The accumulation of wealth through rising house prices is no progress and prosperity. The wealth obtained by rising land prices is what economists call economic rent; It is not earned income. Landowners do nothing to cause an increase in land prices, which are actually the result of community action and government. Consequently, the income should belong to the community.
From the perspective of political things are not so simple. Any politician who even suggests important steps to address the availability of housing will be attacked by those who have an interest in continuing property speculation. Banks are at the top of the list, in addition to being at the top of the list of corporate donors to the Liberal Party. However, banks are far from the only obstacle. There are also the million or more people in Australia with investment properties. Acquired rights of existing provisions, in addition to incremental changes in tax regimes spread over many years (as is the Act) may overcome some of these problems, but still strong political will.
As a nation, we can do better channel our aspirations wealth and the growth of property prices endless. Despite this, do something significant about the affordability of housing are not on the political agenda and work of the Coalition, as there is a low pressure up on them to take action and lot of pressure up and down to do it.
While most media outlets continue to report unconditionally price increases in a positive light there is little chance of this change.