....deregulation of the financial sector ignited credit growth, most of which has been channeled into housing....Australia’s housing obsession is starving productive sectors of the economy, with housing’s total share of lending hitting a record high in January, just as business’ share hit a record low....Australia’s unique mix of tax concessions, such as negative gearing, and the constipated supply system are at the heart of the problem. The former has increased the relative attractiveness of housing investment, boosting demand, whereas the latter has materially dampened the supply response. The end result is too much of the nation’s capital tied-up in housing, which has chocked-off productive areas of the economy. One can only wonder how Australia would look if the billions of dollars of excess capital that had been poured into pre-existing housing had instead been funneled into businesses and infrastructure, as occurs in places like Germany. Instead, Australia has been left with non-mining companies that are struggling to compete and an infrastructure deficit that former Treasury secretary, Ken Henry, claims is hindering Australia’s ability to provide goods to Asia
Posted on: Fri, 07 Mar 2014 11:00:36 +0000
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