Personal tax concessions that drive up housing prices better spent elsewhere - new report

Posted: Monday 06 November, 2017

The $14 billion dished out in individual tax concessions like negative gearing each year would be better spent kick-starting institutional investment into affordable housing projects, says a major new report.

One of over a dozen policy proposals listed in its Assisting Housing Affordability discussion paper, Industry Super Australia says personal tax incentives and first home buyer grants have only fueled the unsustainable growth in property markets.

Combined with record low interest rates, lax lending standards, poorly planned immigration flows and foreign investment, these concessions have made home ownership a distant dream – for even much of the Australian middle class.

According to the paper, national household debt has quintupled since the 1980s to an all-time high of 194 per cent in 2017. Now, at 123 per cent of GDP, it is the highest of the world’s leading industrial nations. And yet, shamefully, Australia’s proportion of social housing, which should act as a safety net for vulnerable people locked out of sales and rental markets is, at 4.2%, one of the lowest in the OECD.

Industry Super chief economist and report author, Dr Stephen Anthony, says housing affordability has reached crisis point, particularly in Sydney and Melbourne, with Canberra not too far behind.

“Governments at every level have squandered the opportunity to deal with this, haphazardly introducing policies that, by driving up demand, have made the situation worse,” says Anthony.

“In the past five years, incomes in Sydney have risen 15 per cent on average, but house prices have risen 87 per cent. It’s simply unsustainable.”

“Young Australians are either up to the eyeballs in debt and in fear of losing their jobs; or destined to forever service someone else’s mortgage”.

“Aspects of the housing affordability package currently before the federal parliament fall well short of what’s required,” he said.

The paper says the solution starts with co-ordinated policies and planning across federal, state and local government; limiting personal grants and tax concessions that only drive up demand; restricting foreign ownership to new dwellings; and replacing stamp duties with land taxes.

It also examines how government and the private sector can work together to increase the assisted housing supply. It proposes a new asset class (e.g. Affordable Rental Housing) to attract institutional investors like superannuation funds.

“The idea is to create longer-term and better quality rental options. Institutional equity investors are more likely to favour a buy-and-hold approach than investor landlords chasing capital gains,” says Anthony.

“A key mechanism for ensuring institutions can realise required returns is to have governments consider concessional land release,” he said.

Download a copy of the report Assisting Housing Affordability here *See key findings below…

Stephen Anthony is available for interview. Media contact: Phil Davey 0414 867 188

 

Key findings:

  • The problem has developed over decades and requires a long‑term commitment by all levels of government to resolve. 
  • Destabilising wealth effects and growing household debt are feeding a cycle of unsustainable property price inflation.
  • Policy responses that increase the buying power of households (eg through grants or reduced taxes) only increase demand, and therefore prices.
  • Ignoring the emerging crisis in assisted housing now risks major future social and productivity costs.
  • Simply increasing overall housing stock will not ensure affordable rental housing becomes available. Instead, increasing the supply of affordable rental housing specifically is required.
  • Waitlists for social housing remain intractable and this system no longer serves as a safety net.
  • Achieving necessary growth in assisted rental supply is beyond the capacity of Australian governments, and private investment is required.

Policy suggestions include:

  • Any policy should promote stability around property the largest asset class held by ordinary Australians.
  • Explicitly link state and local government planning and housing approvals to estimates of regional housing supply gaps.
  • Encourage work and student visa holders to reside outside of property market hot-spots.
  • Direct all foreign investment in residential property to new buildings.
  • Streamline town-planning procedures by removing unreasonable height restrictions within urban infill development zones (including ‘inner’ and ‘middle-ring’ suburbs).
  • Discourage land hoarding by identifying underutilised assets for redevelopment (including assisted housing), and providing incentives to private land developers to expedite land release.
  • Reorient some current tax concessions for existing property towards investment in new housing and institutional investment in new assisted housing.
  • Reform land taxes in Australia via the abolition of stamp duties and replacing them with a mix of land and betterment taxes.

 

Stephen Anthony is available for interview. Media contact: Phil Davey 0414 867 188

Industry Super Australia provides policy, research and advocacy on behalf of 16 not-for-profit Industry SuperFunds who are the custodians of the retirement savings of five million Australians.