Friday, November 11, 2005

house prices

The NZ herald looks at the reaction to potential solutions for the high house market.

I think a capital gains tax is a good idea and restrictions on the amount banks can lend are worth considering (although I am more reluctant to interfere in this way)
You can run the economy by having an artificially high housing market and many home owners may like that but it is the same sort of illusionary gain that you get if the government prints $100 notes and hands them out to everyone. It hurts some people when the house prices drop or the dollar drops but if it puts incentives back in the right places (e.g. export incentives and investment decisions and work incentives) then it will help in the long run.

National's response is a classic response of an opposition party

"The Government should be looking at getting its own house in order before it looks to decimate the value of everybody else's."

This is a nonsense comment trying to divert the government onto how labor is just generally bad - true or not it is irrelevant. The following makes sense but is hardly constructive

"John Key, said the Government was playing with fire and risked a "complete implosion" of the economy."

The government constantly risks this - it is their job to not be as stupid in their application of laws as to cause this.

Meanwhile the banks are similarly useless.

""If they force a marked housing slowdown, then its goodnight nurse for the economy in the short term and the economy would go through a very tough transitional period." "

I think Brendan is playing us for fools here - because we KNOW that a drop in the housing market or the dollar is likely to result in worse economic performance just like slashing government expenditure might hurt short term economic growth. He is just restating this as if it is a threat but the whole point is that we expect long term benefits from correct pricing.

And the academic misses the point
""Market forces must make the housing market come a gutser anyway."
Yes indeed that is true but the question is
A) When
b) Without a capital gains tax your market is distorted already


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