Financial regulatory framework and home ownership
Authors
Media releases
IMF confirms — tax concessions distorting Australia’s housing market
Negative gearing and capital gains tax discount driving up house prices
Home ownership rates have been declining in Australia for most of the 21st century. At the
same time the proportion of people in private rentals is increasing. Housing is becoming
increasingly expensive as a larger share of the existing housing stock is purchased by
households not to occupy but as an investment. The result of this is that the proportion of
rental properties is rising and so the proportion of households who rent is also rising. This
then explains why home ownership rates are falling.
For the last 25 years, average house prices have increased at twice the rate of income. Each year housing becomes more expensive and further out of reach of first-home buyers. Tax concessions such as the capital gains tax (CGT) discount and negative gearing are encouraging housing speculation and driving up the price of housing.
There are only two ways to make housing more affordable. Either the supply of housing is increased relative to demand, or you the demand for housing is decreased relative to supply. If a housing affordability policy does not relatively increase supply or decrease demand, then it will not make housing more affordable. The problem with the current housing policy settings is that they incentivise demand but do little to increase supply.
We recommend the following:
- Restrict negative gearing to newly built housing.
- The capital gains tax discount should be scrapped, and capital gains should be taxed
like other types of income. - Macroprudential policies should be explored to reduce households access to credit
for buying residential investment property. - The government should not pursue policies that preference one group of home
buyers by allowing them access to more funding.