Report

Renovating housing policy

20 Oct 2013
Description

This report argues that government tax and welfare policies, by favouring homeowners and property investors over people who rent, are increasing the divide between Australians who own housing and those who do not.

Overview

Housing policy in Australia is overdue for a major renovation.

Government tax and welfare policies, by favouring home owners and property investors over people who rent, are worsening the divide between Australians who own housing and those who do not. The divide is income-based and it is generational. While overall home ownership rates are stable or declining slightly, declines are much sharper among those with low-incomes or aged under 45.

This report looks at our complex housing system as a whole. By quantifying the major government outlays on the private housing system, it reveals the cumulative impact of housing policies both on individual choices of where and how to live, and on productivity and inequality in our cities.

Government subsidy of home ownership and property investment is skewed in favour of high-income households. They gain far more than others from tax concessions such as the land tax exemption on the family home, negative gearing and the capital gains tax discount. Much more government assistance is provided to buy investment properties than to buy a first home.

Current policies are not producing more home owners. Because supply has been constrained, first home buyer assistance has not only failed to increase ownership levels but may have pushed up prices, benefitting sellers and making it harder for many households to own their first home. Policies that favour investors, such as negative gearing, increase demand for property and push up prices while doing little to increase supply.

Combined with rules that restrict development in established suburbs, higher prices force many households to buy on the city fringes, with poorer access to transport and jobs. This reduces opportunities for individuals and makes it harder for businesses to access skilled workers. It’s a rising form of inequality that damages productivity and the fair go.

Winding back negative gearing and the capital gains discount would stop the artificial inflation of demand for investment properties and enable more people to buy their first home. Repealing stamp duty in favour of an annual property tax would greatly lower the cost of moving, making it easier to relocate for job opportunities, or to a more suitable home. It would also encourage the more productive use of land in our cities.

Meanwhile, more people – one in four households – are renting, and renting for longer periods of time. The lack of encouragement for longer leases in Australian residential tenancy rules undermines stability for renters, many of whom have to move much more frequently than they would like. Renters don’t receive anywhere near the direct government support that home owners and investors enjoy. Greater security for renters, such as longer minimum lease periods and notice periods before a lease is terminated, would give this large and growing group a better deal, without materially reducing landlord returns.

At present, home owners profit from government outlays worth about $36 billion a year. Yet home ownership brings such benefits people would do it anyway. Reform won’t – and shouldn’t – happen overnight. But we need to start the debate now.

Publication Details
Published year only: 
2013
227
Share
Share
Subject Areas
Geographic Coverage
Advertisement