Basically, if we limit lending based on income multiples, it will reduce people’s ability to participate in a crazy housing market that defies fundamentals. Emphasis added:
Our society needs to make a choice. We must either embrace homes as sacred places where ordinary people can afford a stake in this country, or continue to regard homes as speculative investments for those able to play the market. We cannot have it both ways.
If home ownership is deemed a sacred social good, we must go back to the future and directly support owner occupants, not just first-home buyers, through subsidised government loans floated at, or near, the Official Cash Rate. Loans should be affordably pegged to borrower income, to a maximum of three times the income. Ideally, that same income multiplier would serve as a threshold for lender recourse in case of default and would apply to all mortgages. Banks may bleat, but society would heal.
The idea of income or median multiples defining affordable housing is widely accepted by economists.
Academics really struggle to express their ideas in a concise manner, don’t they?
Also, people will suggest anything but building more houses as a solution to a shortage of housing.
The first guy seemed to be saying more housing stock was the answer?
Possibly? I think that’s what he was getting at.
Limiting lending to three times income seems good in theory, but there are issues, or at least the devil is in the details.
The main problem I see is that it’s easy to hide income. You could say all purchases have to be through individuals (not companies or trusts), but then you’ve just destroyed the one industry that is creating more houses for the growing number of people. Large-scale developments are not possible for individuals. You could exempt new homes, which might work?
I like this bit from one of the other lecturers:
My precise answer to the question of whether we can ever solve the housing crisis is no.
There is a direct and clear explanation for my view: what I describe as “commodification of the problem”
It’s not a problem to those that are benefiting, and so it won’t change until they stop benefiting.
