Tuesday, February 16, 2016

Paying landlords to borrow more money

Imagine for a moment that a new political party has formed - let's call it the Property & Real Estate Party, or PREP for short. As the name suggests, this is a party for landlords and the people who work for them.

Leader of the fictitious Property & Real Estate Party, Ms Nora Morse

Now let's also imagine that PREP will be fielding candidates in the next federal election, and the Brown Couch has interviewed their leader, Ms Nora Morse, about their headline policy - paying landlords to borrow money so that property prices continue to go up.

BROWN COUCH: So, Ms Morse, thank you for joining us today...

NORA MORSE: Thanks for having me, it's a pleasure.

BC: Can you tell us a little about your plans for the residential property sector?

NM: Well, Couch, it's not just for the property and real estate sectors - our plan is for everybody. What we're proposing to do is to take money out of consolidated revenue and pay it directly to anyone who is well off enough to own houses, to encourage them to keep borrowing and buying more houses. This will be good for property owners because it will make sure there's always new demand for their houses - in terms of both renters and buyers - and it will be good for the banks, because it will keep money cycling through their systems...

BC: Will it be good for tenants?

NM: Well, no... but then things so rarely are. Tell you what, they could buy a house instead... then they could get hold of some of the money we'll be handing out, take it to the bank and buy more houses.

BC: Okay let's talk about that for a minute. How will tenants buy a house if property prices continue to go up?

NM: Well, perhaps the first thing they need to do is stop buying so much coffee. Did you know that if every poor person in the country stopped spending money on coffee they'd be able to save about $15 a week? That's a lot when you think about it over the life of a mortgage...

BC: Hmmmm, yes I suppose it is. But what will become of our barista friend over the road there if he loses all his customers...?

NM: Well, he might have to buy a house so he can get hold of some of your money instead. That's part of the beauty of our plan - we'll be giving away your money so that you don't have to...

BC: Okay, but if he doesn't have a house in the meantime, he'll have to pay rent to someone, right?

NM: Oh, yes, of course. You don't think we're going to let people live in our houses for nothing, do you? I mean, these things don't come cheap. Not even with all the free money we'll be handing out...

BC: The money you'll be handing out to make sure property continues to become more and more expensive?

NM: Exactly! We can't have houses declining in value. Too many people with too many houses have far too much to lose...! No, what we need is house prices to continue to go up, so that people will always want to buy more houses because that's how you can be comfortable in your retirement. By giving away some of your money to landlords we'll simply be encouraging what is already the natural way of all things...

BC: But... as property prices go up, won't that make it harder for people to buy more houses? Even the ones who already own a few?

NM: Oh, yes, I suppose you could say that. It certainly would be a problem if prices stopped going up, though. People would actually have to start paying off their mortgages instead of just pointing to the balance sheet and saying "I'm rich!" But we'll let the banks sort all that out.

BC: Let's get back to prices always going up... Doesn't that mean that people have to keep borrowing higher and higher amounts to buy houses?

NM: Well, yes... but that's very good for the banks... and that's why we'd like to give more of your money to landlords...

BC: But wouldn't that mean that it will be harder for owner occupiers to compete with them?

NM: Yes, I suppose it would. But you don't actually need to buy a house to live in one - you can live in someone else's. As long as you're prepared to pay the rent, of course. And it's better not to buy houses to live in because they're much more profitable that way... When we're elected we can start paying landlords too, as we're proposing, so it will become even more attractive to own houses not to live in.

BC: But what about the people who can't afford to buy a house to begin with?

NM: Well, like I said, they could make some sacrifices and save up...

BC: Do you think you could put the rent down a little? That might help...

NM: Oh, goodness me, NO! We couldn't afford that! Don't you know how much it costs to keep house prices on a constantly upward trajectory?

BC: What do you mean?

NM: We have to pay the interest, Couch! You don't think the banks are just giving their money away, do you? No, no, no, no, no... giving money away to people who own houses is a role for government, not the private sector!

BC: Can you elaborate a little?

NM: Well, every time a house price goes up, so does the amount someone has to borrow in order to buy it. Interest rates are already at record lows, so there's really no room for the banks to move on this. We're already paying billions of dollars a year to the banks in interest, so you see we can't put the rent down. We wouldn't be able to afford to buy more houses if we did that, and that would be devastating for house prices which of course would not be good for anybody...

BC: Okay. So how would giving money to landlords help here?

NM: Well I'm glad you asked, Couch. Seems we might be finally getting somewhere here. It's very expensive to buy houses, and it's not just the one-off expense of coughing up the deposit for a loan. As I've explained, keeping a house is almost as hard buying one, when it comes to the cost. The interest, Couch! The interest! It's crippling! No clear-minded person would enter into such servitude with a bank unless you paid them to! Which is why we think the government needs to give them more of your money, and that's why we'll be running in the federal election later this year...

BC: Okay, one final question. If house prices keep going up, wouldn't that mean the amount of money government would have to pay landlords would also continue to go up, just like rents?

NM: Yes, well, we all need to make sacrifices for people who own houses, Couch...

BC: Ms Nora Morse, thank you very much for your time today. Best of luck with your campaign.

NM: No Couch, thank you. Now, can I interest you in a tidy three-bedder only a hop, skip and a jump away from local tips and open cut coal mines...? Think of the employment opportunities for your tenants' children!

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