Real estate, banking lobbies selling the Liberals’ disastrous stamp duty cut policy in Fairfax

Oh, look. The apologists for the real estate industry and banking industry – the two industries* who’ve profited the most from ridiculously high house prices – are busy running interference for the Baillieu government as it prepares to enact a massive transfer of money from the public to the wealthy by cutting stamp duty:

MELBOURNE has received further confirmation it has the least affordable housing in Australia, with data showing it takes home owners on average almost 4½ months’ household income to pay stamp duty, easily the highest in the country.

Stamp duty is only a part of the cost of a house – it being high doesn’t “confirm” that our housing is “the least affordable” at all. Our housing is still more affordable than Sydney’s, for example, even with the greater stamp duty rate, making that sentence an utter lie.

House prices are a factor of what the banks will lend. Cutting stamp duty will simply result in the difference being bid up by buyers in competition – the extra cash will go to the vendor. Which will increase the amount of equity people who own houses have in their existing house, and thereby the amount that banks will lend them to buy an investment property. Thereby pushing up prices even higher.

Seriously, can anyone point me to a place where they’ve cut stamp duty and prices have actually gone down? No? Then why are we cutting government revenue, and the ability to pay for services like schools and hospitals, to transfer all that money from the public to the property speculators? Note: the Liberals have not yet revealed what they’re going to cut to pay for the massive drop in revenue.

Oh, and guess the source for this “story”:

A report released today by home lender Bankwest…

Isn’t it kind of the banks to benevolently and altruistically bring this self-interested one-sided report to our attention? I’m sure they’re genuinely dedicated to reducing the price of housing from which they’ve made so much money. Naturally what they want will be in all of our interests.

Seriously, the only people quoted or spoken to in Adam Carey’s report are the Bankwest analyst and a spokesman for the Liberal Party, who’s upset about the plight of those in our richest suburbs:

Some stood to pay well over half their annual household income on stamp duty. The highest stamp duty bills in Melbourne are in Stonnington (71 per cent), Port Phillip (63 per cent) and Boroondara (63 per cent). A spokesman for the Baillieu government said the figures underlined the need for urgent measures to reduce the stamp duty burden.

Well, if the wealthy are paying more tax because they can charge more for the assets they own, then of course that’s a high priority for the new Liberal government. IT MUST BE STOPPED.

Has anyone seen some balance from The Age on this issue? Obviously Fairfax derives a lot of its income from the real estate industry, but it has pretensions of being more than just their mouthpiece, doesn’t it?

*I should put the word “industry” in quotes; bankers and real estate agents are not parts of the economy that actually create things – they’re parasites who take an ever-growing cut from the rest of us.

Ooh, that’d be interesting, wouldn’t it – if the real estate agents, who like governments also take a percentage on each house sale and who’ve also been doing very well out of the “boom”, were calling for themselves to also lower their percentage take in consideration of the price inflation. Surprisingly enough I haven’t heard such a call. Have you?

ELSEWHERE: Joe Hockey and the Liberals return to type, defending the interests of the banking industry cartel against consumers.

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18 responses to “Real estate, banking lobbies selling the Liberals’ disastrous stamp duty cut policy in Fairfax

  1. “Cutting stamp duty will simply result in the difference being bid up by buyers in competition – the extra cash will go to the vendor.”

    Fine with me. We paid around $40 grand to the NSW government earlier this year for the privilege of buying the family home, and I can’t see what we’re getting for it. I know you’ll say that depriving the state of revenue will lead to an immediate cut in services (women, minorities hardest hit of course), but here, to paraphrase Kerry Packer, it’s not like they’re doing that good a job with the money already, as this report suggests and anyone who lives here knows: http://www.smh.com.au/nsw/what-a-waste-how-nsw-blew-2m-a-day-20101211-18tgy.html

    I’d rather have paid $40 grand more for the house and put the money in the pocket of people who might have done something worthwhile with it.

  2. “House prices are a factor of what the banks will lend”
    Um, do you mean what banks will lend are a factor of house prices?

  3. Splatterbottom

    Keri, maybe the view is that house prices are limited by the capacity to pay, which is to some extent determined by bank lending policies. Although you are right in that if banks lend up to a percentage of the value of the house then, provided they can squeeze the interest out of you, they will lend more if the house prices increase.

  4. SB,

    Yes, house VALUES will increase the capacity to borrow, but not the capacity to buy, since an increased value means the price you’re paying is higher. In addition, banks will (generally) not lend you more than what pushes your debt-to-income ratio to 50% of your gross income. So you might be able to borrow based on the value of the house but not your income.

    So the sentence only makes sense as “What the banks will lend is a factor of house prices” – Houses could be priced at a billionty dollars, but if no-one can borrow a billionty, they’re only going to be priced that way for a very short time. Conversely, banks could lend a billionty dollars, and the house price will not-so-gradually rise to fill in the gap between borrowings and purchase price, because people will bid higher.

  5. “So the sentence only makes sense as “What the banks will lend is a factor of house prices” – Houses could be priced at a billionty dollars, but if no-one can borrow a billionty, they’re only going to be priced that way for a very short time.”

    Obviously I meant “the market price for houses”. Nutters who want to charge a price they’ll never get don’t really count, since their houses will by definition not be sold.

    I think we’re in agreement on the main point, which is that the prices that people pay for houses are a factor of what the banks will lend them and competing purchasers. And since banks lend more if you have more equity, increasing existing owners’ equity by letting them keep the money that would’ve gone to the government will, quite obviously, lead to increased house prices.

    Shabadoo – just so we’re clear, what public services are you saying should be cut in order to pay for this transfer of money back to the people who presently own houses in order to make it harder for the people who don’t to ever do so?

  6. Oh, forgot to add: I think what’s being stated here is that since Banks take into account the stamp duty component in the Asset to Debt Ratio, if you reduce the stamp duty it increases the capacity to borrow, and the market fills in the gap.

    Housing prices aren’t as simple as Borrowing Capacity=Housing market, but there’s certainly a large correlation between borrowing capacity and housing prices.

  7. “the prices that people pay for houses are a factor of what the banks will lend them and competing purchasers”

    Loosely, but not so bald as that. VALUES are what the bank works off, and there is a lag of (in very general terms, depending on the area and the speed of sales) three months between any st increase in a given area and the mean value of a certain type of house in a certain type of area increasing in value when assessed by a Property Valuer. The banks work off these figures, so the correlation isn’t as direct or as simple as you state. There’s also the fact that when house prices increase more than a few base points in a given area it can slow the sales, or speed them up if it means there’s more foreclosures (which tend to occur in clumps both in area and amount), and that means the value of the property can take a shorter or longer time to show a spike.

    It’s a bit more complex than you’re stating it, is my point. And investor-heavy areas (There are some that are far lighter due to council regs) will show a spike far more quickly than any other, or even not show a spike at all, since they’re artifically inflated to begin with.

    The housing market is complex. Values doubly so, and correlation doesn’t equal causation (That’s going to be etched on my tombstone, I swear).

  8. Banks lend based on capacity to repay, and the likelihood of recouping their outlay through the sale of security, in this case a residential property, should there be a default. Note also that bank valuers have become far more conservative in valuing properties post-GFC (has been my experience and what I’ve heard anecdotally), and this is something that has had the added effect of tapping the brakes on house prices as it is affects pre-approvals when one is selling a smaller house and moving up the ladder.

    Jeremy, I think there’s plenty of waste and maladministration present, certainly in the NSW government (read the article detailing Auditor-General reports I link to above): one need only look at the hundreds of millions of dollars spent on projects that never happen but look good for purposes of an announcement. Beyond that the state bureaucracies are well over-staffed in many cases, and you could probably slash 10 % of the administration of each and every section without making a dent in front-line service delivery.

    Then there’s the question of how much “service” a state government should provide. I suspect we’ll never agree on this question, though I have no problem with (in fact think there should be more investment in) worthwhile infrastructure that keeps society and the economy moving.

    The point is that it is galling to have to hand over $40,000 like some sort of mafia “vig” for the privilege of buying a home, and then to open the paper and read that that cash is just going down a sinkhole of waste. I maintain that I’d rather that cash go into the private sector where it might be used to invest in or buy something that employs people and/or generally does something half-way useful. Perhaps if the electorate were not treated as walking ATMs by both parties, there’d be some incentive to run a tighter ship.

  9. Pure ideology Shabs2.

  10. Bloods, so NSW is in fact a model of fiscal probity and sound governance? Phew! Now that that’s settled …

    And in any case, what’s wrong with ideology? We all have preferences when it comes to policy. Some people think individuals should be able to keep more of what they earn; others think the common pot should be expanded and divvied up by the political classes. Some people are born to a decent station in life and improve on it; others use politics to act out some Oedipal drama against the parents who did right by them. It’s all a contest of ideas, and that I would have thought was a good thing.

  11. Well, that’s wonderful news Shabs. So the Liberals here in Victoria won’t need to cut any important public services, and will be able to fund them properly. They’ll pay for those and the stamp duty cut and all the new prisons they’re going to build with magic administration “savings”.

    Don’t know why I was worried!

  12. What proportion of Vic Gov’t revenue comes from stamp duty, Jeremy?

  13. POINT AVOIDED.

    It’s okay, shabs, I understand.

    And I have no idea what proportion of revenue comes from stamp duty, but it’s not in dispute that cutting it in half, as the Liberals plan to do, will cost the budget a lot of money.

  14. For the record: “According to Treasury’s pre-election budget update released yesterday, stamp duty will swell to $3.82 billion in 2010-11 — an increase of $149m since Treasurer John Lenders tabled his May budget — and total tax revenue will top $14.74bn.” (http://www.theaustralian.com.au/national-affairs/victorian-election-2010/buoyancy-adds-287m-to-tax-take/story-fn6wlyrv-1225950360393)

    This is presumably on top of Commonwealth grants, and as the article suggests, this is basically found money coming from a buoyant property market. It should be treated as gravy, and not be funding the essentials (California and other American states found this to their peril when they assumed the good times would last forever).

    Of course, it is ironic that you would be so attached to stamp duty as a source of essential, recurrent funding, given that a leitmotif of this blog is the overinflated nature of the property market and the need to unwind same – which, if your wish came true, would lead automatically to a decline in stamp duty revenue.

  15. Pingback: Fairfax shamelessly pushing real estate industry’s interests – Pure Poison

  16. I agree that they shouldn’t rely on it, and that the government should be looking at ways to increase housing affordability – but the fact is that this cut WILL take a lot of money from the budget that could be fixing seriously underfunded areas.

    If your theory is that that money isn’t needed, then I’ll be fascinated by your defence of any upcoming cuts to funding, or failure for funding to keep pace with CPI.

  17. Stamp duty should be like GST. The advertised (ie. the ‘sale’ price) should be stamp-duty inclusive and then, at settlement, the vendor from ‘their’ slice of the pie, pays stamp duty. In a serious way, this is about public perception. Complaints about GST don’t come from consumers, because its just accepted that tax makes up part of the total price that you pay. Stamp duty gets complained about because you see a price, agree to pay it, and then remember that government tax will be paid ‘on top’ of that.

    And Shabadoo’s arguments are specious : I consider that the NSW Government wastes money, and therefore I oppose any measure that will reduce the tax receipts of the Victorian government. WTF?

  18. “And in any case, what’s wrong with ideology?”

    Nothing, unless you’re incapable of seeing through it.

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