The trends are clear, in many western countries around the world, home prices have been rising, and in recent years rising fast. The underlying drivers are the freeing up of mortgage markets, and lower interest rates, allowing more people to borrow more, which is why debt has been rising too. As you know I have long argued the rise in home prices to stupid levels is all due to the deregulation of the financial system, driven by neo-liberal thinking which leaves ordinary people in the dust. Greater debt driven demand lifts prices.
Of course, the Government is fixated on the supply side story. And we can expect they will peddle this hard into the election. The government’s housing policies include 1.2 million new homes built by mid-2029, a $9.3 billion agreement with states and territories to support social housing and homelessness services, a scheme to help 40,000 households purchase a new or existing home, and tax incentives to support investment in new build-to-rent developments. One of those latter tax incentives includes increasing the capital works tax discount depreciation rate from 2.5 per cent to four per cent.
The other factor in play is high migration, another demand driver, with another 2 million people expected to land in the country over the next few years. This was subject to interesting questioning from Senator Bragg in Estimates recently. Astonishingly, Treasury has not considered the impact of high migration on housing demand (and implicitly) price.
But what of the tax breaks for investors? Well according to a new report from Australian Council of Social Service (ACOSS), Two tax breaks are “disproportionately” benefiting Australia’s richest while simultaneously fuelling the housing affordability crisis. The report criticises the capital gains tax deduction for property, where only 50 per cent of capital gains made from an asset are taxed when it is sold, and negative gearing, which allows investment expenses to be deducted from income.
ACOSS says the wealthiest 10% of households own two-thirds of all investment properties and are receiving 82% of the $16 billion in tax relief the two breaks provide.
While I absolutely agree the investor tax breaks are part of the problem, unless we address too high migration, control unsustainable lending growth, and also work on building enough new homes to meet new demand, the affordability situation will continue to deteriorate.
As a result, many will choose to leverage up just to get into the market and out of the rental sector. Government policy is at fault here. And they appear to be avoiding the elephants in the room. Address too high migration, and control unsustainable lending growth.
I wonder if this is because many politicians are also property investors?
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