Tax owner occupiers like property investors, says property expert

by Julia Corderoy16 Feb 2016
The Federal Government should tax owner occupiers in the same way as it taxes property investors, according to a leading property expert at the University of Sydney Business School.

Associate Professor Dr Jamie Alcock told Australian Broker that Australia’s aversion to taxing owner occupied housing is driving the housing affordability crisis in the country. 

“When people have to pay more tax for something, that doesn’t drive house prices up it drives house prices down.  

“The driver of price is because we all want housing and a big reason for that is that owner-occupiers get such a sweet tax deal. We are one of the very few countries where owner occupiers are almost completely untaxed as an investment. When you are looking at a universe of possible investments for an individual to make where all of them are heavily taxed except for one – where is everyone going to put their money? They are going to put their money in the most tax efficient vehicle and that is owner occupied housing, driving the price up.” 

However, introducing tax on owner occupied housing should also be met with a decrease in income tax, which Dr Alcock says will help grow the economy and ensure a more equitable tax system.

“The long term objective is really to get people investing more of their capital into the productive economy and taxing in a much more egalitarian manner,” he told Australian Broker.

“Contrary to popular belief, income tax doesn’t tax wealth, it taxes aspirations. Whereas property is wealth, so property taxes are actually taxes on wealth rather than aspirations… My suggestion is to move right away from taxing income – and the expensive administration of taxing income and policing it – and moving to a much more simplistic and egalitarian taxation on property.

“The OECD put out a report a few years ago where they empirically explored the link between different classes of tax – property taxes, consumption taxes and income taxes – and GDP growth and they found that property taxes were the most GDP growth friendly of the lot and income taxes were the least GDP friendly of the lot.”

According to Dr Alcock, Australia is one of the very few countries which doesn't have a more rigorous approach to property taxation, and we should be looking to learn from our global counterparts.

“The USA is a really good example. They tax property, and it varies from state to state, but it is roughly 2% of the market value of residential property is paid in property taxes every year,” he told Australian Broker.

“However, you also get an offsetting tax deduction for a complying mortgage. That helps first home owners because if you don’t have a lot of equity in the house and you don’t have a lot of wealth then you don’t pay much tax. But once you have built up equity and you’ve built wealth up, that is when you pay the tax.”

However, Dr Alcock concedes it is unlikely Australia will follow suit in the near future, if at all.

“In Australia we have a history of taxing property, and as a result, the first politician that introduces tax on property at the same time as reducing income taxes would find themselves very unpopular. 

“So I don’t think it is politically going to ever work but it is where we should be moving if we want growth and prosperity for our future and our children’s future.”


  • by John 16/02/2016 9:07:10 AM

    So you want to tax the person again, who works had, saves up to purchase their home, then another tax? Please, we are the most over taxed country in the western world. We pay tax on a Tax.

  • by Brado 16/02/2016 11:28:03 AM

    I think it's a great idea. Abolish income tax completely, raise the GST and have a tax like suggested here. Tax people on their spending and their wealth... Not on what they earn. You would probably find that people spend more money that way, increasing taxes... But if you want to not be taxed, you can also not spend money.

  • by JC 16/02/2016 12:36:20 PM

    40% of the costs of a new home delivered to market is represented by taxes and local government charges for the development and construction of the property already. The home owner has already paid tax on every dollar that they use to purchase this property, making buying a new home one of the highest taxed transactions around, and then, to top it all off the state government puts their had out for more funds in the way of stamp duty on the transaction! Wow, buying a new home really is a tax free haven isn't it!