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  1. #1

    Default Short-term fixes threaten stability

    THE government has received another invitation to escalate its already sizeable intervention in the residential property market.

    The Australian Housing & Urban Research Institute last week urged governments to subsidise home buyers in financial distress and if, as recent form suggests, Kevin Rudd and Wayne Swan take up this offer, they will launch their fourth housing intervention in a year, creating the most artificially engineered market in history.

    Whatever the benefits of this scheme may appear to be, this growing cavalcade of short-term fixes is serving to limit the proper functioning of the marketplace and creating a generation of home buyers ill-equipped to face the ups and downs of an increasingly unaffordable housing market.

    This year we've also seen the banks agree, under pressure, to partial suspension of repayments for the recently unemployed holding mortgages of $500,000 or less. This came as the boosted first-home buyer grants were turning a slow market into a surging one in less than six months.

    Increasingly, borrowers are being enticed into the market by taxpayer-funded incentives and if these new buyers get into trouble, as some inevitably will, banks and other lenders will have to absorb the shortfall.

    At face value, it looks as if the government is trying to replicate the US subprime industry's success in luring under-financed borrowers into the housing market. Borrowers are increasingly diving into the market with little equity and even less idea of how to manage their finances, encouraged to borrow more while paying less attention to the debt they're taking on or the financial accountability that goes with it.

    The likely outcomes of these interventions are becoming increasingly clear. With just a little stimulation, house prices have galloped ahead, leaving the conservative, prudent first-home buyer who patiently saved at a disadvantage.

    But when times turn tough, non-performing borrowers are protected from the financial consequences of poor planning, debt management and reckless borrowing. Instead, they are subsidised by other borrowers and, if this new proposal is taken up, by taxpayers. We're creating a yo-yo market. With each turn of financial events, more and more owners are lurching in or out of financial distress and the calls for yet more bailouts get louder.

    Each new intervention is restricting the supply of homes for sale, making the market less flexible and less affordable for the next crop of young buyers.

    So how do we avoid this spiral? The first thing the government should do is step back and allow markets to find their own balance between supply, demand and affordability. They will have to start treating anyone buying a property as an adult -- able to make their own decisions and accept responsibility for the consequences.

    Read more ...

    Jenny

  2. #2
    Join Date
    Sep 2007
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    Auckland
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    Default

    Now that's some commonsense for a change!


 

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