What are some national fiscal policies that can affect mortgage rates, housing starts, and housing prices?
In general terms, national fiscal policy refers to the way in which a government’s spending and taxation policies are able to influence the economy. Governments tend to use fiscal policy to control aggregate demand, price stability, economic growth and employment. Fiscal policy is a contrast to monetary policy, the alternative macroeconomic policy whereby attempts are made to stabilise the economy by controlling the money supply and interest rates. In the United States, prominent economists such as Martin Feldstein have previously stated that there is no fiscal policy currently in place that is designed to help reverse or slow down the continuing slump in housing prices. However in 2008 a National Affordable Housing Trust Fund was approved by the federal government which aims to provide funding for housing for poorer families. However the Cato Institute argued that this move would make housing "slightly less affordable for most people so as to make housing more affordable for a few people.” Providing tax concessions and incentives to builders is the most obvious way in which housing starts can be affected through national fiscal policy. A government could provide tax concessions to encourage builders to develop on greenfield sites rather then brownfield sites, thus increasing the overall supply of housing. This in turn should theoretically have the result of driving housing prices down.
From the perspective of homeowners, certain government taxation will have a direct impact on housing prices. Placing a tax on the sale of a home will obviously affect the price of the property. A change in the rate of Capital Gains Tax is a key example whereby fiscal policy can have an impact on property prices.
National fiscal policies can have a significant impact on mortgage rates, housing starts, and housing prices. Here are some examples:
1. Monetary policy: The central bank's actions, such as adjusting interest rates, can influence mortgage rates. Lowering interest rates typically stimulates borrowing and can lead to lower mortgage rates, encouraging more qualified buyers to enter the housing market. Conversely, increasing interest rates can make borrowing more expensive, leading to higher mortgage rates and potentially reducing demand for housing.
2. Tax policy: Changes in tax policies can also affect the housing market. For example, tax deductions or credits for mortgage interest payments can make homeownership more affordable, promoting higher demand. On the other hand, if tax incentives for homeownership are reduced or eliminated, it might lead to a decrease in demand and potentially impact housing prices.
3. Government spending on infrastructure: Investments in infrastructure projects by the government can stimulate economic growth, create jobs, and increase demand for housing. Improved transportation, schools, and other public facilities in an area can make it more attractive for buyers, positively impacting housing starts and prices.
4. Policy towards housing subsidies: Government programs aimed at providing affordable housing, such as subsidies, rental assistance, or loan programs, can affect the housing market. These policies can impact both the supply and demand sides of the market, potentially influencing housing starts and prices.
To understand how these policies are affecting mortgage rates, housing starts, and housing prices, it is crucial to stay updated on fiscal policy changes announced by the government, monitor statements from the central bank (such as the Federal Reserve in the United States), and follow discussions on tax reforms and housing-related legislation in mainstream media and government sources. Additionally, experts and analysts often provide insights and predictions on how fiscal policies may impact the housing market through reports, articles, and economic analyses.