Housing market "fundamentally inequitable" says think tank

by Phil McCarroll14 Sep 2016
Housing in Australia is becoming increasingly unattainable for first home buyers according to a new report from think tank the McKell Institute.

According to the institute’s Choosing Opportunity: A Policy Blueprint For A Fairer Australia report, housing affordability in Australia, particularly in capital city markets, has become a national issue thanks to a “generation of inadequate policy foresight.”

In particular, the report claims policies around housing supply and property taxes have contributed to the current situation where younger generations are increasingly likely to face being permanently locked out of the market.

“Existing arrangements are fundamentally inequitable – supply is not meeting demand, the younger generation are being increasingly entrenched in the rental market with no credible path to home ownership, and existing tax arrangements such as negative gearing are oriented towards existing home owners or property investors in higher income brackets,” the report said.

In order to improve affordability, the McKell report recommends negative gearing be restricted to new homes only and alternative revenue streams to stamp duty be established.

On negative gearing, the report argues that current arrangement too heavily favour the interest of investors over that of home buyers, particularly young people and families.

The institute argues moving restricting the tax break to new homes would make them more attractive to buyers and therefore increase supply.

“The proposed changes to negative gearing… aim to encourage new housing construction, easing the supply pressures that have been central to inflating prices in recent years,” the report said.

“By encouraging the construction of more housing stock, price growth is expected to be alleviated for both renters and those looking to enter the housing market.”

In regards to stamp duty, the report puts forward two possibilities. The first would see stamp duty replaced with a land tax while the second would see buyers able to opt in to either an upfront stamp duty payment or to pay it off over time.

“While a complete stamp duty/land tax switch would be favourable for most home buyers, other options could be implemented that give consumers the choice between paying up front stamp duty or a longer term land tax,” the report said.

“This report recommends further study into the option of a preferential home ownership taxation system, where home owners can opt in to either an upfront payment of stamp duty, or agree to a longer-term taxation on the value of their land to a comparable value.”

Wilhelm Harnisch, chief executive officer of Master Builders Australia, supported the report’s call for increased housing supply, however he stressed altering negative gearing would not be a positive for the market.

“Tackling the structural barriers to increasing the housing supply will also grow the economy, create more jobs and increase our standard of living,” Harnisch said. 
“The report fails to demonstrate that negative gearing is the fundamental cause of rising house prices. Therefore tinkering with negative gearing cannot be at the core of a public policy response to Australia's housing affordability challenge,” he said.