Falling Property Prices is Bad News
There is no questioning that housing affordability is a serious issues in Australia, when comparing home prices to disposable income we rank at + 9%. However, there are a number of solutions that can assist in addressing this issue.
The protectionists argue that restricting migration would lead to less demand for housing and prices trending downwards. This sounds fine until you take into account the economic benefit that migration provides. Take Japan for an example, an economy that has virtually blocked migration, where the population has declined by more than one million people resulting in more than 350,000 houses that are no longer needed.
House prices will continue to drop in areas that lose people, mainly due to the houses being empty. Additional impact will be the decline in taxes as a result to fewer people, taxes that benefit us all.
Negative gearing continues to be a major policy issue following the recent federal election. There is no doubt that investing in property in Australia is popular, and negative gearing is popular tax incentive for these investors. Getting rid of it however ignores that affordability is not just about buying a home but also renting.
The Australian rental markets is very competitive, where private investors might reap the rewards of the tax breaks but they also like tenants and are prepared to cute rental levels to ensure their investment is leased.
The policies that work best to ensure house prices remain affordable are those that increase the supply of housing, and providing enough housing for people to both rent and to buy.