Economics

What are some national fiscal policies that can affect mortgage rates, housing starts, and housing prices?

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  1. 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.

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    posted by Thomas

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