Monday, March 22, 2010

Victoria housing bubble

Victoria has a crisis, but no one is admitting to it. The Victorian government is silent about it. Newspapers report escalating house prices with seeming glee. It appears that only certain economic malaise deserves government attention, such as a rise in unemployment, a drop in retail spending, or (God forbid!) a decline in GDP. Of course, all these translate into a drop in living standard of the average populace, whichever way you look at it. But there's more. A rise in house prices is much more punishing to the average wage earner looking to own a home, than a similar percentage rise in anything else. That's because a house mortgage takes the biggest bite out of his pay packet. Since the GFC (i.e the global financial crisis of Q4 2008), the median cost of a house must have risen at least 25%, making the median cost of a house close to $500,000. This is slowly but surely creating a big gulf between the older people, most of whom have bought houses years ago, and the young people just starting out in their careers. For the latter, the standard of living has plunged to a very low level, and the government is still not sitting up. Isn't this an economic crisis?

Without a direct disincentive for investors to buy up properties, people will always continue to buy more than what they can use. The government is already doing that with electricity bills: as your usage goes up, you pay a higher rate. There should be no qualms about doing the same for houses: the second house you own should cost you a lot more in stamp duty. Houses should go to families who need a roof, not for people to profit in the get rich game. In my opinion, the best way for the government to address this issue is to remove negative gearing and to increase the capital gains tax or stamp duty so as to discourage people from treating houses as an investment.

1 comment:

Anonymous said...

Time to change the local Govt.
Good points......