Australia tops world list of overpriced housing
Reports today say that the OECD has found that Australia has the most over-valued property market in the world.
The lack of interest at national level in the high cost of housing has irritated me for a long time. There is no national strategy on housing, and whenever federal Ministers are questioned about it, they tend to buckpass it by saying provision of housing is a state issue, or by saying the federal Government is doing their bit by keeping interest rates low.
However, I think it is undeniable that Federal Government tax policy has played a big part in Australia gaining this unwanted status of having such excessively expensive and unaffordable housing.
The price of housing and the ability of every citizen to gain access to an affordable home should be a fundamental priority for all governments, but for the federal Government in particular.
In 2003, when the public pressure about the housing affordability crisis became too great, the Treasurer dodged the issue by getting the Productivity Commission to have an inquiry into first home ownership. By the time it reported, the pressure had receded and the government ignored every recommendation that required action at the federal level, while still demanding the states act on recommendations that affected them.
The consequence of the lack of interest (and courage) in tackling this issue is a generation of young Australians being unable to afford to buy a home and an increasing demand on public housing at a time when state governments are decreasing the amount of new housing stock they are making available.
Another consequence of expensive and over-valued housing is that many Australians are now dangerously exposed to high debt levels, which are secured against an over-priced asset.
It is undeniably a good thing that interest rates are relatively low, but many Australians are far more vulnerable than before to even small fluctuations in rates.
The ALP must also take some responsibility, as five years ago they allowed the Governments huge, inequitable cuts in capital gains tax to pass the Senate. By passing this change, the ALP and the Liberals gave a big windfall to the highest income earners and, combined with existing negative gearing provisions, encouraged investors to switch from shares and other more productive areas into property. This priced many home buyers out of the market, all of which has played a key role in Australia ‘achieving’ the top ranking of world’s most over-priced housing.
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7 Comments, Comment or Ping
Geoff H
Perhaps it would make interesting reading to see a list of government ministers and their financial holdings. I wonder just how many have investment properties?
Dec 1st, 2005
O Ekdikitis
After having caused a large part of the rise in housing prices by introducing the capital gains tax concessions, increasing the first home owners grant, talking up the housing boom, and talking down interest rates, (all of which led to greater debt levels), the coalition realised it had voters by the balls and so in the last election used their high indebtedness to scare them off Labor by stating the untestable “…interest rates would always be higher under a Labor Government”.
Dec 2nd, 2005
amortiser
An investment property is subject to Capital Gains Tax and is not exempt from it.
It is residential housing while it is the principal place of residence of the owner that is exempt from CGT.
Are you advocating that residential housing be subject to CGT? Be open about it and put it in your platform for the next election.
With the introduction of CGT by the Hawke Government in 1987 when at the previously election they said that they wouldn’t (if memory serves me correctly the CGT was supported by the Democrats), there was a shift in emphasis from business investment which was now heavily taxed to residential housing which was exempt. I wonder why that was.
The solution to the problem with the skewing of this investment would be to get rid of the CGT altogether and then there would be a change in investment decision making into more productive investment.
Would the Democrats advocate such a change? Somehow I don’t think so.
Dec 5th, 2005
Andrew Bartlett
amortiser
I have been open about our Capital Gains Tax policy and it is all on the record for many years, so there is no need for anyone to make up other things and imply that is our policy.
If you can find anywhere where I have said investment property is exempt from CGT, please let me know and I will correct it. Otherwise, perhaps you could correct your implication.
Getting rid of CGT would be a free kick for the rich and the biggest kick in the guts imaginable to Pay As You Go taxpayer. As it was, the government’s halving of CGT, supported by Labor, back in 1999/2000 provided a massive tax windfall to the highest income earners, with nothing to lower income earners, many of who already paid higher effective tax rates.
The fact that this combined with the negative gearing tax break (which is also in effect subsidised by all taxpayers) to push people into property speculation just doubled the hit to lower income earners, who now also have to cope with artificially high housing costs as a consequence, just adds insult to injury.
Dec 5th, 2005
disgruntled
Dont forget the resulting large annual rate rises we’re all forced to pay. Some of us dont wish to sell and gain from inflated prices, have no children-rellies to gain from inheritance, and our taxes increasingly subsidise those with increased need for rent assistance, as well as often contributing more of our earnings to taxes than the negatively geared… Many low income families were turfed out of their rental housing when the owner sold to realise the high profits, and the costs of moving for these people (especially with children) isnt considered.Even long held business property can reap the benefit of increased rents, with further disruption to many long term renters. I can’t see much difference between what the political parties do ultimately- I think their advisors must all come from the same schools of thought, and waiting for market forces to right the social injustices they may even contribute to is futile..
Jan 24th, 2006
Gerard
The lucky country. A fair day’s pay for a fair day’s work. Well, being in my 30’s and having worked hard and put my savings away so not to accumulate debt … i’ve seen house prices double in the space of a few years. After over 10 years of hard work and hard savings, it has all seemed rather pointless. Yes, the lucky country has got lucky for some…but the gap has widened. Little wonder the young honest hard working peron can no longer be bothered working. In Australia, housing has become all about investment and profit at the expense of ordinary working class people having homes and a place to raise a family. The lucky country? Well, no longer for myself and many other Australians who have worked hard and have seen the ‘home’ boat sail away. This is not the Australia I thought we would be become -an everwidening gap between the rich and the poor and governments who not only do nothing to avert this, but actually encourage it.
Jan 25th, 2006