The buyer tax will definitely increase the social welfare if the amount collected through tax will be used for the society. However, it is simply a loss from buyers and sellers perspectives as shown in the above figure. (Aumann, 1966)The increment in purchaser’s tax expands tax annuity as depicted by grey rectangle. It is yield of the difference of Pt and P (tax amount in ideal scenario) and Qt i.e. quantity traded at tax.
Besides, the vital clog is that the govt. annuity is lower than the sum of excess loss depicted in result a. It is represented by blue and pink colored triangle and known as deadweight loss. This loss is caused due to the house unit left untraded because of increment in housing cost due to tax effect. Thus, although the government tax annuity increases because of purchaser’s tax yet it’s always lower than the total excess loss depicted by solution a.(Aumann, 1966)
In case of monopolistic competition, there are fewer sellers and competition is less. In this case Govt. will act as monopolist by securing an area for developing the housing market. The details about various questions will be discussed in the proceeding sections.This is possible when the price of the housing sold will below the market price i.e. it get decreased and the volume will get increased as shown in the curve below. It is the point at which marginal revenue will become zero.The govt. will set price at which profit will be zero. At this point MR= MC and profit will zero and also it will maximize the welfare.The three countries that we selected are USA, UK and France and they are using below mentioned policies to stabilize housing market. It must be used in Australia to regulate the housing prices.
There are three policies in this category of credit. They are reserve requirements, liquidity requirements and credit growth limits. All these policies are applicable to the banking system. All the three policies mentioned above, do not aim specifically at the housing sector, therefore they are referred collectively as general credit policies. We can also characterize them as tools of non-interest rate monetary policy. Generally this type of regulation specifies the size of the needed reserves, depending on the type of deposits, for example the deposit can be savings, demand or time deposits. It also depends on their currency of denomination, whether it is a foreign or domestic currency, and also on their maturity. The mentioned requirements for liquidity are particularly in the form of ratio of assets of highly solvent instruments. These are very important regulations, the main purpose of which is ensuring the ability of a bank to withstand the outflows of cash under stressful conditions. The basic difference between the two is that that the liquidity requirements want the bank to keep all the associated funds in central banks where as in case of reserve requirements, they oblige the bank for holding liquid marketable securities. These instruments are important to regulate the housing demand for funds in the form of loans.