PC Inquiry into First Home Ownership

[MarkB]

As many of you are aware, the Treasurer has asked the Productivity Commission to undertake an inquiry to evaluate the affordability and availability of housing for first home buyers and to report by 31 March 2004.

The homepage for the Inquiry is:

http://www.pc.gov.au/inquiry/housing/index.html

The Treasurers press release can be found at:

http://www.treasurer.gov.au/tsr/content/pressreleases/2003/067.asp

The Inquiry terms of reference (ToR) are at:

http://www.pc.gov.au/inquiry/housing/tor.html


In conducting its "Public Inquiry" the Commission will release an "Issues Paper" which will essentially expand upon some of the matters raised in the ToR.

Any member of the public with an interest in the Inquiry will be encouraged to make a written submission to the Commission.

However, you would be best advised to wait until the Issues Paper is released before you do this.

The Commission will conduct public hearings, almost certainly in all capital cities and possibly some regional centres.

Some time after this, the Commission will produce a "DRAFT REPORT", which will be based upon its assessment of the information recieved in written and verbal submissions and of its own research.

Further public comment will be invited on the Draft Report.

The final report will be handed to the Treasurer no later than 31 March 2004, unless the Treasurer extends the Inquiry.

Upon reciept of the report, the Treasurer has about 4-6 weeks to consider it, before tabling it in Parliament. At that time the Treasurer will also table the Government's response to the report.

What happens after this, will be the subject of another post.

For those interested, I will continue to provide further information as it comes to hand.

MB

 

[MarkB]

A bit more on the Inquiry

- Who are the Productivity Commission?

The PC is the Cth Government's principle advisory and research body on all areas of microeconomics.

They are an independent statutory authority. They can only make recommendations, they do not have the power to implement changes.

The current PC is an amalgamation of the Industry Commission (IC), Bureau of Industry Economics (BIE) and the Economic Planning Advisory Council (EPAC).

The IC started its life as the Tariff Board - many years ago.


- What is a Public Inquiry?

For those who have read my previous post in this subject you will have some idea.

Basically, a public inquiry is a program of open (public) research and analysis into a particular issue (as defined by the terms of reference). A public inquiry will accept public submissions and conduct public hearings (like a verbal presentation).

- What happens at the end of the Inquiry?

Officially what happens is that the PC hands its Inquiry report to the Treasurer. He then has about 4-6 weeks to respond publicly (in Parliament). Typically the Treasurer either endorses the PC's findings, or he dismisses them, or he accepts some and rejects others.

- But why would he do this?

Well, now we are getting into politics.

The PC is independent - this is a marriage of convenience for both the Government and the PC.

If the Government likes what the PC says it says "look at what this independent body has found, etc".

If, on the other hand the Treasurer does not like what the PC has said, then he can also quite rightly say "this is not government policy"

And he would be right, on both counts.

 

[MarkB]

More Questions and answers

- Will the Inquiry lead to a reduction in state stamp duties?

Officially the PC has no power to make the states change their stamp duty. Niether does the Commonwealth Government for that matter.

However, it IS possible that as a result of the political pressure which will undoubtedly follow this Inquiry that there will be heightened calls for reductions / re-calculations in state stamp duties.

Mind you, I would not be so certain as to hold my breath on it.

There is also one argument that perhaps the states and territories should have the same rates. It is a National Competition Policy type argument and for me it doesn't hold water.


- Can the Inquiry do anything to reduce the costs of first home ownership?

In my opinion, very little, if anything.

- What is state stamp duties are reduced?

I believe that sellers will simply factor this into their prices. At best, the gains from any cuts in state stamp duty will be split between buyers and sellers.

There is another problem as well - any cut in state stamp duty will increase the amount of money that any prospective purchaser can borrow (as it is an on-cost of buying a property - like a loan cost). Consumers will be able to borrow more, hence they will spend more, and they will probably keep forcing prices up!


- What if the FHOG is increased?

Major disaster on at least 2 fronts

i - see comments above re: stamp duty. Increasing the FHOG will only increase buyers ability to pay, hence they will spend more and force prices up.

ii - Politically I believe this would be VERY problematic. The Government would have a very hard time explaining to those who have already recieved their FHOG that they shouldn't be annoyed that they didn't get more.


- Can they control prices in any way?

No. This is Australia - like it or lump it, we live in a mostly free market society.

Aside from that, there is simply no way to control prices in a market where:

i - what is being sold is not fungible (that is, each property is different), and

ii - where it is being sold by many sellers.

(Unlike times past when the Australian Wheat Board, for example, has set wheat prices. One seller, and each grain of wheat is basically the same as the next).


- So will prices fall?

The only possible way that prices can fall is if the overall market forces of demand and supply lead them to.

 

[MarkB]

You could be forgiven for thinking that this Inquiry would just drop off the face of the planet.

I know that I basically forgot about it (as previously mentioned, I think it is little more than a political exercise).

Anyhow, for those diehards amongst you, please note that the Productivity Commission has released its issues paper, the contents of which are:



Preliminaries

Cover, Terms of reference

1 Why this inquiry?

2 The Commission’s approach

3 Recent trends in housing markets
Prices in historical context
Trends in affordability
First home buyers

4 What determines market outcomes?
Markets for housing
Relative costs of renting versus owning
Population and demographic change
Government assistance
Macro-economic influences
Availability of finance
Planning, land use policies and building controls
Performance of the building and land development industries
Infrastructure charges
Taxation

5 Mechanisms to assist first home buyers

References


The issues paper is available on-line at:

http://www.pc.gov.au/inquiry/housing/issuespaper/index.html

(it is only 31 pages long).


In the coming day or so I will post a precis of the issues paper (as I see it).


The Commission has also started posting electronic copies of the submissions that it has received:

http://www.pc.gov.au/inquiry/housing/subs/sublist.html

There are currently 60 or so available.

At a quick glance the bulk of the submissions thus far have come from individuals. This is not altogether surprising as Inquiries such as this do tend to bring out lots of Mums and Dads.

Enjoy.

MB

 

[abcdiamond]

MB
A nice post.

As I started to read it, I began to think of a couple of questions I would ask you, but as I read further on, you answered them.
It will be interesting to see if the stamp duty is equalled out between the states, or better still, abolished !

I think if it is abolished it would mean more people will buy and sell more often. I know that without stamp duty I would have seriously considered selling our Sydney IP and buying 2 or 3 QLD ones.

regards