Government Incentives

"The government should..." is generally the opening of a bad idea. This post I'm going to take apart government incentives.

Lets start with the first time buyers grant 5% rebate on a home up to €500,000 that's €25,000. Sounds great right? Well no, the market reacts to the available funds of the buyer, lenders were happy to give 5% extra and sellers rose the price to the available funds of the buyers. Which is why we've seen an increase on first time buyers homes by 5%, that brings first time buyers back to square 1 and not able to afford houses.

Lets look at the limitations on rent, landlords cannot raise rents by more than 4% from January of this year. Which saw a drastic increase in rent before January. Furthermore it petty much guarantees rents will increase by 4% per annum, in 12 years rents will have doubled. Given wages increase by 2% per annum and people are already paying over half there wages we could reach a critical mass for wages to rent within 20 years. I'm theory the market should stabilise before that critical mass hits, in theory landlords won't let it get to that point as they'll end up in a position with no one to rent to. Unless another government incentive kicks in.

Essentially what we see with any state incentive to relieve the market only works for a short period until the market increases to take advantage of the extra available funds of the consumer. The rules of supply and demand lead to the funds of the consumer dictating the price a product will be sold for, essentially no vendor will price themselves to a point of no sale. This has to be taken in balance with how essential the product is.

Now lets throw on the conspiracy hat. A number of politicians are property owners. If they're in a position to regulate their market upward then they likely will. Even worse they're doing it with tax payers money. This is even further reason government has no place in the marketplace.