Monday, August 01, 2005

family policy 2

One popular policy that has been suggested is to give students money in order to help them buy their first house. I am opposed to this policy (despite the fact I would be a beneficiary).
This cannot address a problem of low home ownership in NZ. It sounds like it might but it is easy to explain why not. There are two possible owners of a house
1) The occupant
2) An investor

If an investor owns the house - the home owner doesn't - if no investors owned any homes all homes would be owned by occupants.

Homeowners price houses based on how much money they have available - that is they will pay as much as they can afford. Investors will base the price they will offer based on what they think homeowners and other investors will pay. So if al homeowners were given 10,000 dollars to buy a new house then house prices would just go up by 10,000. It would cost millions of dollars and achieve nothing.
If all new homeowners were given 10,000 dollars it would do the same only to a slightly lesser degree because in pushing up house prices you would also push up the wealth of current home owners (as if you were donating money to them also).

the worst thing is that this is all unproductive investment - it diverts capital away from productive uses such as employment and towards assets which either cant be made (like land) and thus have no positive effect produced by their high price.

the best way to help people into hteir own homes is therefore to discourage investors owning homes and renting them. The easy way to do htis is to make home ownership unattractive from a tax perspective infact doing the exact opposite of the "giving peopel money to buy a house" strategy. you should take money from people who own houses (eg with rates) and therefore push down the cost of houses by driving investors out of the market.


Post a Comment

<< Home