Fuel on the fire: negative gearing, capital gains tax and housing affordability

16 Apr 2015

Calls for action to restrict tax deductions for negatively geared property investments and the 50% discount on Capital Gains Tax, that are together costing the Budget $7 billion a year and fuelling housing price booms.

A vital goal for tax reform is to improve the affordability of housing. Australia has among the most expensive housing in the world. From 2002-12, average prices rose by 92% for houses and 40% for flats while average rents rose by 76% for houses and 92% for flats – well above the CPI.

The high cost of housing is caused by too much demand chasing too little supply. Since 2000 there has been an explosion of rental property investment. From 2000 to 2013 lending for investment housing rose by 230% compared with a rise of 165% in lending for owner occupied housing. But instead of improving affordability, it has made matters worse: Investors are bidding up the price of existing homes without building enough new ones.

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