Can the Government Do Anything for Housing?

In the 1960s, the Rorschach test was the most widely used projective (personality) test. You might even know this as the ink blot test. But if you’re not familiar, the test involves the subject verbalising what they see in various ink blots.

Below is one example of the various cards used in the test.

rorschach-test

Source: Wikipedia

What do you see in the picture above? A bat? Maybe a piglet and its reverse reflection? The great part about the test is that there are no wrong answers.

In the national survey in the US, the Rorschach test was ranked eighth among psychological tests used in outpatient mental health facilities. But what do you think of when you see the picture below?

house-prices-property

Source: Property Asset Planning

You might think ‘bubble’, ‘overinflated’ or even ‘crash’. Of course, the upwards pointing arrow helps evoke those words. While I don’t hold this opinion, many people believe the housing market is in for a crash.

Even treasurer Scott Morrison put his state, New South Wales, on notice over booming house prices. According to the Australian Financial Review:

Mr Morrison will promise the next meeting of state and federal treasurers, to be held in December, will focus on how state governments can do away with planning rules that stop, or delay, new houses being built.

He will also leave the door open to incentives for state governments to reform their laws and release more land, in a broadening of one of the key recommendations of the Harper review of competition policy.

This is just another example of governments interfering where they shouldn’t.  The Federal treasurer believes the market is getting away from people. No matter how hard they work, earn or save, they are finding it harder and harder to get into the market.

But this has less to do with prices and more to do with tough regulations. Almost any Australian on minimum wage can afford property if it’s far enough away from major cities. The reason it’s so hard to get a loan is because regulators are telling banks to tighten lending standards.

Obviously, extremely loose standards aren’t want we want. Another situation similar to the 2007 housing crash in the US should be avoided.

However, what would you expect to happen to first home buyers if lending regulations were to tighten?  Regulators seemingly want to squeeze buyers out of the market, creating an equal amount of supply and demand in turn.

But now they realise that it’s not just investors being squeezed out of the market, but first home buyers as well. Many of these first home buyers are now seeking help from parents to save up for a deposit on a home. And even then it might not be enough.

So now Mr Morrison wants to increase the amount of land to increase supply. But I believe it won’t be first time home buyers who will have the first bid on these parcels of land — it’ll be investors.

Paraphrasing Adam Smith, the invisible hand of the market, not governments, should be dictating prices.

Härje Ronngard

Junior Analyst, Money Morning

PS: Most people think great deals in Aussie property are already all gone. This is the worst attitude to have. Why would you take financial advice from some self-proclaimed guru? Instead, why not do your own research and take control of your financial future.

But where do you start?

If you’re interested in investing in property, check out Money Morning’s property expert Callum Newman’s report ‘Australian Real Estate Game Plan’. In the report, Callum reveals the eight letter word that really drives property values. It’s the ultimate guide to help you start your future property plan, and it’s free!

To get your copy of Callum’s report, click here.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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