Principle of Economics The Shadow Economy

Questions: 1. The Coalition Government claims Labours policies to scrap negative gearing on existing investment homes (but not new investment homes), and to reduce the generosity of the capital gains tax concession on investment properties, will drive down house prices.Illustrate with a supply and demand diagram and describe with reference to your diagram the basis for the Coalition Governments claim. 2.No doubt some speculative and ponzi investors have been attracted to the Australian property market. Mortgagors have bet heavily on the assumption that house prices will continue to rise. Suppose Labour is elected in 2016 and their housing policy changes are implemented and do result in falling house prices, as you illustrated in (i). Describe how this may first affect ponzi investors and then potentially speculative investors. Then in your supply and demand diagram for (i), illustrate and describe how the presence of ponzi and speculative investors could exacerbate the house price fall brought about by the housing policy change 3.Surely everyone supports more affordable housing. In fact, as Abbott is clearly aware, the opposite is true. If they are elected in the 2016 federal election, the Labour Party is promising to modify housing policy (negative gearing and capital gains tax concessions) to reduce upward pressure on housing prices.Explain why for decades federal Labour and Liberal Party policies on housing have promoted less affordable housing. 4. Multiple Choice: Select one out of the four options. According to John Quiggin, increasing unaffordability of housing in Australia is due to [2]: Informational asymmetries The public good nature of housing Government failure Externalities of housing Answers: 1. The Coalition Government Prime Minister Claims that the Labours policies will lower the housing price of the country so that the investors who invested their wealth in the real estate will face loss. The labours Policies of the government will impact on the real estate investment and negative gearing on the investment of the housing will be perceived(equity, 2015). The Prime Minister reputedly warned the people that the Labours policy will lower down the real estate price. The new investment however, secured. As the government reduce the tax concession of capital gain tax on the investment properties will drive down the price of the housing. As the tax will increased there are many people who want to sell the property thus the price of the house will be reduced as minimum people will want to buy property. As the supply will be increasing and the demand is reducing so the price of the housing will be reduced. Figure: Demand supply diagram. 2. The speculators and the ponzi investors attracted to the Australian property market as they find it is an opportunity to invest in the real estate business in the country as the real estate business is always profitable because the price of real estate always tend to hike(Rasmussen, 2011). If the Labour is elected in 2016, then the price of the real estate will be lowering and the ponzi investors and speculators have to face severe monetary loss. The ponzi investors and speculators financial position will be worsening if the housing price will lowering. 3. The Labours policy of modifying the housing policy to make affordable housing for everyone by negative gearing and capital gain concession will reduce the upward pressure on housing price and the price of housing will be reduced. However, the Liberal party consistently taking policies to increase the price of the real estate as there are many population have real estate and if the price of the real estate increasing then the larger population will get profit from their property(Schneider and Enste, 2002). 4. Multiple Choice: Select one out of the four options. According to John Quiggin, increasing unaffordability of housing in Australia is due to [2]: Informational asymmetries The public good nature of housing Government failure Externalities of housing References equity, A. (2015).Appetite for house price rises outstrips concern for equity. [online] The Age. Available at: https://www.theage.com.au/comment/appetite-for-house-price-rises-outstrips-concern-for-equity-20150612-ghmbez.html [Accessed 4 Jun. 2016]. Rasmussen, S. (2011).Production economics. Berlin: Springer. Schneider, F. and Enste, D. (2002).The shadow economy. New York: Cambridge University Press.