Housing affordability probably off Budget agenda

US still gets dragon’s share of Chinese investment
May 1, 2017
SUMO Group goes live
May 16, 2017

Tomorrow isn’t just Tuesday 9 May. It’s also annual Budget day, when the government announces its plans to spend our taxes.

All eyes will be on property investment, which is current over-capacity for older Australians. Yet experts believe the Budget will offer little relief to those priced out of the property market.

According to ABC business editor, Ian Verrender, for example, “everyone agrees” the Australian property market is a bubble, yet this realisation has come too late. By too late, he means the banks are now excessively reliant on mortgages. So if, for instance, if property prices plummeted as a result of making them more affordable, which can only be done drastically, said Verrender (say, through abolishing negative gearing), once rates eventually rise or we are hit by an external economic blow, many will be unable to service their mortgages. The banks, which derive a large chunk of their funds through mortgages, and are lynchpins of Australia’s economy, would fail. The public, banks’ investors, would suffer, and the country would fall into a deep recession.

This is perhaps better explained via illustration. Although the below diagram depicts the subprime mortgage crisis in the US in 2008, which had different causal factors, the effects of an Australian property bust would be similar.

So all this means is, if you’re a prospective first home-buyer, don’t expect a grant or an allowance to use super funds for property purchases anytime soon, or perhaps ever.