5 reasons the government won't let property fail...
One of the things I love most about property is that the government can’t let it fail.
Reason #1. The construction industry is way too important.
The construction industry is the nation’s fourth largest industry with almost 1 million workers. We all know people whose livelihood depends on construction, right?
No government is going to survive an election if the industry fell over.
Reason #2. We need to house people
According to the ABS we grew by 326,100 people last year. A growing population means more houses.
And a house only gets built when there’s a profit to be made.
This is another reason the government needs house prices to stay strong. It’s so developers have an incentive to build and people have somewhere to live.
Reason #3. Nobody wants to lose money
Nobody wants to lose money, right?
So if house prices dropped then home owners would be worth less.
Try winning an election when people lose money on YOUR watch ... if you get my drift.
Reason #4. People spend the equity
One of the places people get money from is the equity in their house.
The house goes up and people borrow against it. They use this money to renovate, but the next property maybe buy a car and pay off their personal loans and credit cards.
If house prices fell then people couldn’t get their hands on this money. Which would suck a lot of cash out of the economy, with potentially disastrous consequences.
Reason #5. Bank stability
One of the reasons our economy is so strong is that our banks are highly regulated by government and strict internal compliance. This I can assure you in my 12 years of working in the banking industry.
They hold security over property which is worth far more than what they’ve lent out.
However, if property crashed the security they hold might be worth less than what they’re owed. They’d be in negative equity territory and that could bring them down. Or at least put the brakes on them. No lending = no economy.
So there you have it.
5 reasons why the government’s fortunes are tied to property, and why they have to keep it going.
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