We saw this article in the newspaper: Rent relief scheme wins support. In that article, it said, ?STRUGGLING renters would get cheaper housing under an ambitious proposal for state and federal governments to spend millions of dollars a year to subsidise housing.?
How does this proposal work? It will be through a ?subsidy flows directly to the investor rather than the tenant. To receive the subsidy, the investor must provide rents at about 20 per cent below market value or in some cases even more.? The ?state governments would be asked to provide cash, slash stamp duties and fast-track planning approval while the Federal Government would be encouraged to contribute cash or tax credits.?
We shake our heads as we read this news article.
As we said before in Wasteful investment not the cause of housing un-affordability, the affordability and rental crisis was the outcome of artificially induced housing demand that was brought about by making money too cheap unnaturally. The resulting bubble and excesses (see The Bubble Economy), which was further exacerbated by government tax policies, resulted in mal-investments in the economy that ought to be liquidated eventually. This is what the market calls a ?correction,? which is vital for further sustainable growth.
What is the effect of this proposal? By subsidizing investors, it interferes with the correction process by rewarding bad property investments and delaying the badly needed deflation of house prices. The real problem is that house prices are currently too high.
What a bad idea!
