Tuesday, July 12, 2011

Will the Carbon Tax directly affect housing affordability?

The deadline date for the introduction of the Carbon Dioxide Tax is scheduled for July 2012, up until that time there will be much speculating on what the impending tax will do to the housing market. The majority of economists agree that the Cardon Tax will lead to a 0.7 per cent increase to inflation which will undoubtedly catch the eye of the RBA, who would consider raising interest rates to combat the rise. The National Australia Bank is forecasting two rate rises in the next year, one in late 2011 and one in May 2012 just before the Carbon Tax is brought in. While an initial 0.7 per cent inflation rise is considered a minimal impact, some economists like JPMorgan Stephen Walters believe there may be unforeseen economic aftershocks once the tax is introduced: "If we see electricity prices go up by 5 per cent rather than 3 per cent forecast, the unions are going to start to push for higher wages in addition to the compensation on offers. That is a clear second-round effect and that is when it becomes material."

The housing sector too is worried about how the Carbon Dioxide Tax will effect housing affordability. The Housing Industry Association - a body representing builders and suppliers of building products is arguing that the Carbon Tax will add an additional $5000 to $6000 to the cost of a new house and land package. This cost will of course be passed on to the customer which has the further potential to discourage home buyers from building their new home. "Increases in the cost of construction materials including bricks, steel and aluminium will be simply passed on to purchasers, pushing the price of new housing higher," REINSW President Wayne Stewart said, "the knock-on effect of this could see the median Sydney house pushed out of the reach of many prospective home buyers."

However, not all economists think that housing will be adversely affected by the Carbon Tax. Tony Wood of The Grattan Institute says, "Whenever industry is given the incentive, it finds ways to do things that cost less than any economist can ever think of." Some industries like aluminum, steel and cement, he argues, will be compensated under the current Carbon Tax scheme. "They should not be allowed just to put their prices up and pass through a carbon price they're not paying for."

What are your thoughts? Do you think the Carbon Tax will directly impact and hurt housing affordability in Australia? Put your comments below.

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