Taxation & Housing

 

Governments influence housing prices in a number of ways including direct funding, subsidies and tax incentives.  Tax policies can be effective tools to promote the supply of suitable housing and encourage investment in affordable housing.  On the other hand, tax policies can favour and protect existing asset holders, creating barriers to new entrants seeking to buy housing, restricting new supply and stimulating demand. This leads to higher housing prices due to scarcity.

Issues

 

  • Tax concessions include the exemption of owner-occupied housing from capital gains tax and land tax, discounts on capital gains tax for investment properties and negative gearing (the ability to offset the costs of owning investment properties against other income). [i]

 

  • Many of these tax concessions are counter-productive.  They encourage people to build larger houses than what they need to tie up their savings in ‘tax-free’ residential home-ownership that is non-productive and environmentally wasteful, restricting diversity in smaller types of built form and contributing to inflated prices and rents. [ii]

 

  • Capital gains tax concessions for investment assets, including, but not limited to, housing, amounted to $5.8 billion in 2013-2014. [iii]

 

  • Over half of taxpayers with negatively geared property are in the top 10% of tax payers and 30% earn over half a million dollars a year. [iv]

 

  • Over 90% of investor borrowing is for existing rental properties, not new ones, so investors are bidding up home prices without adding much to the supply of housing. [v]

 

  • Stamp duties are widely recognised as inefficient taxes.  Stamp duty on the purchase of housing prevents people from moving through the housing system, relocating for employment and downsizing as they age. 

 

Resources

 

  • ReThink Tax describes the tax reform process underway in 2016, with an introduction to tax issues and opportunities to comment on proposed reforms - http://bettertax.gov.au/

 

  • Tax Watch provides analysis of Australia’s tax system, including tax policy related to housing and land.  The website also includes an international comparison of the Australian tax system with other countries. - http://www.taxwatch.org.au/

 

 

 

 

Last updated December 2015


[i] Brody, G. and McNess, E. 2009, Assets for all? A review of the Australian Government’s $77 billion support for asset building , Fitzroy, Victoria: Brotherhood of St. Laurence, http://www.taxwatch.org.au/ssl/CMS/files_cms/Brody%20and%20McNess%20-%20Brotherhood%20of%20St%20Laurence%20-%20Assets%20for%20All%20-%2014.12.09.pdf [Accessed 28 July 2010].

[ii] TaxWatch.org, Land and Housing Notes

[iii] Australian Government. (2015). Tax Expenditures Statement 2014. Canberra: Treasury.

[iv] ACOSS. (2015). Fuel on the fire: negative gearing and capital gains tax and housing affordability . Canberra: ACOSS based on 2011 data.

[v] ibid

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