Whilst driving I heard in passing on the radio that this weekend is some super big deal thingy for the technologically backward industry known as real estate. Apparently some 1200 homes are going to be auctioned this weekend in that antiquated process whereby people stand out the front of a building and some of them raise their hand until it is sold. You then go inside, sign paperwork that sits as high as an old fashioned phone book, hand over a stonking big cheque and then wait 90 days to pay another big cheque and give the government a vast sum of money to put a stamp on the title and then lose it.
However, the inefficiencies of the real estate market are not the point of this little piece but to demonstrate that policy thinking is an evidence free zone because in the radio commentary on the spike in the housing market was the suggestion made by economists that the first home buyers grant be doubled. I thought I had misheard this so decided to track down the source article and lo and behold they were correct. I found the pice below online via the SMH.
A $15,000 first-home-buyers’ grant should be doubled to keep pace with house price gains in Sydney and address the so-called ”deposit hurdle” that keeps first-time buyers out of the market, a property research company says.
BIS Shrapnel says NSW government revisions of the first-home-buyers’ grant in October 2012 made it more effective by limiting it to purchases of new dwellings, rather than established ones, and lifting it from $7000 to $15,000.
I said that policy is an evidence free zone and this is an example of such an instance. Consider this, I am a developer generating new housing estates and the first home buyers grant is doubled, what do I do? The first thing I do is life the price of my property by the increase in the grant. Simple – thats how the real world operates. A simple search of the evidence (not the lobbying) shows that various incentive schemes do not seem to help first home buyers at all.
So what does it mean?
Well it means that economists have no idea of how systems work – if they cannot work out one as primitive as housing then they have no hope of working out equity markets.