Now is the spring of our discontent

It seems we’re in for a “spring of discontent”. The release of the long-awaited carbon tax details were intended to produce an element of certainty. It’s been spruiked as a simple effective plan ensuring pollution is reduced “at the lowest cost to the economy”, with a large spoon of sugar for us “ordinary folk” designed to sweeten the pain and lessen any complaints. The question is simply one of trust. As any good sales rep understands, you don’t sell the product, you sell trust. And let’s be honest – with questions and retaliations flying from the right and left, we’re doing little more than swimming against a tide of economic uncertainty.

There’s a good degree of wisdom behind the saying “seeing is believing”, because until the model has been tested, tax cuts granted, bank accounts debited and credited, no one is going to fully grasp the implications of this policy or believe the spruiked outcome. The economic model produced by Treasury already has a large question mark because there has been little, if any, consultation with companies in control of dictating price rises, and now we find the results were modelled on a $20 per ton estimate, not the $23 per ton reality. The truth is, no one really knows how much prices will rise – and more importantly, it seems the majority have little trust in those who sit at the controls.

It’s inevitable that the cost of building will increase, and as a consequence, be passed onto the purchaser.   HIA has estimated an increase of roughly $6,000 to the average house-and-land package – and this doesn’t begin to factor in providing internal facilities such as fridges, furnishings and other such essentials. Even with the tax benefits, first-home buyers will be hit hard. It’s been suggested that prices may increase in Canberra’s market as staff recruited to administer the new “tax” place extra demand on the inner city ring supply. Across the rest of the market affordability and consumer sentiment will continue moderate price rises, and as a consequence the rental sector will likely continue to fall under high demand. Gross yields across Australia have already risen to 5% (according to RP Data), and predictions point to a further increase.

However, whether fear and uncertainty will keep us in the atmosphere of what has widely been spruiked as a “buyer’s market” is questionable. Lending to home buyers rose 4.4% in May after a 4.6% rise in April, agents are starting to report dwindling stock supplies, and the seasonal change from winter to spring will likely result in a greater optimism as the traditional buying season commences. It could be the first light on the horizon for vendors, many of whom have been forced to moderate expectation if they wanted to sell during the first half of 2011.

The arguments surrounding the carbon dioxide tax, should not focus on the scientific evidence, but rather the policy changes we’re facing. Although everyone has a desire to reduce harmful emissions and create a better world for future generations, we have a natural adherence to authoritative dictation on how we should conduct our lives. It’s fair to suggest that any reduction in carbon emissions will result in some element of short-term pain and therefore not be popular – but the question mark should be over how much pain our largest employer (small business) can take.

The RBA has already indicated that interest rates will most likely remain flat, indicating we’re suffering tighter economic conditions than previously expected as we lead into the second half of the year, however none of this is likely to provide much assistance to home buyers.

Our worm’s-eye view is hardly going to present us with the answers we require, however we’ve had flat interest rates since December 2010, continued low rates of unemployment, strong growth in the wage sector, and the effects of the commodities boom will soon be felt. Although we’re not looking at sharp price rises any time soon, and caution will prevail, rising rents and population increases in the inner- and middle-ring suburbs of our most populous cities will keep the property wheel turning – and over the long term, prices rising.

We’re already starting to see small upswings in the property market as the shift between supply and demand gradually moves in favour of the seller. With education and guidance it’s possible to purchase well in any market, however it’s always preferable to enter in while negotiation is taking place behind closed doors, rather than in the public arena of “deepest pockets wins”.

There will be some interesting times ahead.