A recent proposal to help make housing more affordable in Australia is to allow first-time homebuyers to use their superannuation savings (that is, compulsory retirement savings) to help pay for a house. This proposal has been criticised by a number of politicians, commentators, and economists. One such criticism came from UNSW Professor Richard Holden, who tweeted, "Using [superannuation] to buy housing shifts money directly from young savers to old sellers. Complete own goal. 1st year econ-level stuff."
Use this information to answer the following questions. You may assume that the market for housing is perfectly competitive.
- Is the supply of housing in the short run likely to be elastic or inelastic? Explain your answer.
- Using a graph, briefly explain how this policy is likely to affect the market equilibrium price and quantity of housing in Australia.
- Based on your answers to parts A and B, explain whether the predictions of the demand-supply model you have studied in this course are consistent with Professor Holden's statement that this policy would "shift money directly from young savers to old sellers."