Thursday, 11 December 2008

Post#106 Patriotic Squandering (The Australian Government's Economic Stimulus Package for 2008)

I couldn't really take in what was happening until a few days ago. Then it got through to me that the Commonwealth Government was giving money away. Just giving it away. And the only squawk from their so-called Opposition was that some people would spend it on booze, gambling, drugs and whores and that others would just sit on it as savings. Apart from what I think of the idea in general, I think these are just the same sort of nit-picking nonsenses that Malcolm Turnbull is making into a standard practice. The money that is saved by being banked is ultimately providing capital for loans and the vice industries are just as real a part of the economy as a delicatessen or retailer of vacuum-cleaners.

My exasperation with it is because the government has found over a thousand million dollars to spend on a scattergun subsidy rather than thinking about investing in a long-term restructure. A good starting point would be the banking and housing sectors. That's where the current furore began and it would be a good place to begin with repairing the system.

The Road to Housing Hell

The perennial treadmill with these two sectors is the rent-trap into which prospective buyers are forced as they attempt to save to purchase a home. Those savings are eroded as the landlords attempt to extract maximum profit from the rental properties. At the same time, the prices of homes for sale also rise, as the vendors attempt to make the greatest possible return on their capital.

The rent-slaves don't like their servitude and respond by trying to increase their incomes. Those employed by others seek higher wages, those who own businesses raise the prices charged to their customers and/or try to cut their costs. One of the cost-cutting measures may be shedding staff; trying to do the same or more with less. Some of those shed will be those rent-trappped ones trying to get money together for a home purchase. So there's a stimulus right there to inflation and unemployment. What happens to the unemployed who can't find new employment quickly? The landlord still wants that rent and if they can't continue to meet it they're out, looking for cheaper accommodation.

These are complex issues, and complicated. I have heard people say that they prefer renting to owning their own home but those people seem likely to be in a very small minority, so these stresses will affect most people in the developed world.

Housing has become a focus for those who study the economic indicators. The figures for new construction commencements are scrutinised fiercely each quarter and the progress of prices is tracked breathlessly in the financial media. I see in this a main feature of the problem. The fundamental purpose of housing construction must provide housing. Not to provide incomes to constructors, realtors, conveyancers, landlords and speculators. Nor to housing industry analysts. This is the same malaise that afflicts money markets. When currency becomes primarily a speculative commodity the price of it ceases to have any relevance to the real-world value of what is being marketed. Money should be valued according to what can be bought with it, housing should be valued according to the quantity and quality of the work and materials applied to the construction and the utility of the site.

(More to follow...)


Michael said...

Housing, the big unanswered issue.

You're right, it was a scattergun approach to give money away selectively. It may or may not work; meanwhile millions have been blown away.

What annoys me is the continuing additions to the first-home buyers grant. First-home buyers are a small part of the housing market and often they need to move houses within a few years because of employment changes or an expanding family.

But second time round they are slugged with massive stamp duty and receive no assistance for what is an essential life move.

This will possibly occur in an environment of negative equity and possibly fixed interest penalties over the next few years.

And renters are forgotten. People making a go of it in the commercial rental market deserve support, especially if they're on low incomes.

Retarius said...

I was going to say that the first-home grants are a trivial measure -they're usually gobbled up by the market and the situation's back to square one. I.e. the market factors them into the price rises.