daniel chigunwe
Jotham Chiketa
In economics and politics of science, fiscal policy pertains to the issue of Government revenue collection and expenditure to influence the country’s economy.
There are two branches of economics, which are microeconomics and macroeconomics.
Microeconomics is the branch of economics that studies the behaviour and decision-making of individual economic units such as households, firms and markets, whilst macroeconomics deals with the whole economy focusing on economic growth, inflation, unemployment, international trade, fiscal and monetary policy.
Effects of fiscal policy on real estate
Fiscal policy refers to the overall use of the Government spending and taxation to influence the level of economic activity, employment and inflation.
1. Government spending: Increased Government spending on infrastructure such as roads and public transportation can boost property values and therefore attract businesses and residents to an area.
This in return can drive up the demand for housing and commercial spaces.
2. Taxation: Tax policies like deduction for mortgage interest or property taxes can influence housing affordability and demand. Any changes in tax rates or laws can also impact the attractiveness of real estate investments.
3. Interest rate: Fiscal policy decisions such as setting interest rates can affect mortgage rates and borrowing costs. Lower interest rates can increase the demand for housing while higher rates can slow down the market.
4. Economic growth: Fiscal policy aimed at stimulating economic growth can lead to increased job opportunities, higher incomes and a stronger demand for housing.
5. Regulations: Zoning laws, environmental regulations and building codes can influence property development and prices.
6. Property tax reforms: Changes to property tax rates or assessment procedures can impact property values and investment decisions.
Effects of monetary policy on real estate
Monetary policy is the regulation of money supply by the central bank into the market.
1. Expansionary monetary policy (lower interest rates)
Results in lower mortgage rates, therefore increasing the affordability and demand for housing;
Increases borrowing and easy access to credit, boosts housing market;
Higher property values due to increased demand, which drives prices up;
New construction as a result of low interest rates promotes development.
2. Contractionary monetary policy (higher interest rates)
Higher mortgage rate reducing the affordability and demand for housing;
Reduced borrowing due to tighter credit conditions slowing the housing market;
Lower property value due to a decrease in demand drives down the prices;
Reduced construction due to higher rates, therefore, discouraging new development.
3. Rental market: any changes in interest rates impact the rental yields and demand
4. Commercial real estate: Monetary policy influences office, retail and industrial property values
5. Real estate investment trusts: Interest rates changes affect REIT stock prices
6. Housing affordability: Monetary policy impacts affordability especially for first time buyers.
During the 2008 global financial crisis, the US federal reserve’s quantitative easing led to historically low interest rates, boosting the housing market.
Moreso in 2020, following the Covid-19 pandemic outbreak, the central bank imposed a rate cut and the stimulus package supported housing markets.
Disclaimer: no responsibility is taken upon the writer for anyone who uses this information. Anyone who wants advice may contact the undersigned or contact any reputable organisations.
Jotham Chiketa is a member of the real estate institute of Zimbabwe and writes in his own personal capacity. He is contacted on. Mail: [email protected], WhatsApp number (+263)773323624
Bongani Ndlovu