Chapter 27:    HOUSING AFFORDABILITY FIX PROPOSITION


 

MOTION: That the Rudd Government immediately embark upon a process of progressively eliminating the negative gearing options currently available to investors in housing.

Rationale:

Housing affordability is at an all time low and a massive shortage of housing starts exacerbates the multitude of economic dilemmas slapping the face of the Rudd Government. Rents are on the increase due to the rental stock shortage in most areas of Australia. By all accounts, when compared with the United States for example, the price of housing in Australia is much higher relative to average wages. Higher property valuations feed directly into rental fees as well – a double whammy for Australians generally.

The great OZ family dream of a brick and tile cottage on a ¼ acre suburban block has almost vanished for families earning less than the average income and is a huge struggle for those hovering just above the average income. If the dream of “The Lucky Country” for the average family is to be resurrected, then radical surgery is needed to reduce the price of housing – other than a recession driven by rising interest rates resulting in mortgage stress, or something similar. But as soon as the slowdown disappears, the carpet baggers will be back, pushing housing prices to increasingly unaffordable levels for the average OZ.

At a time of downturn in the economic cycle Australia has the paradox of booming mineral exports versus transport infrastructure backlogs, government policy logjams and a massive shortage of unskilled and skilled labour. Increasing migration programs to help alleviate labour shortages means that the demand for housing cannot keep up with construction rates in the current climate.  Some people argue that diminution of the tax breaks inherent in “Negative Gearing” would exacerbate the problem. In the short term such a possibility exists, but in the longer run, cheaper housing would result. The economy might also benefit from money that previously would have been invested in housing, being invested in more productive activities.

The origins of negative gearing for property development which facilitated the middle class launching into housing property acquisition actually disadvantaged lower income Australians who paid their taxes but could never afford to buy a second house as an investment. Traditionally, in a rising market the trick for some ambitious investors has been to mortgage the family home to be highly geared and to borrow to the hilt to buy as many properties as possible in quick succession. The now bipartisan sacred cow of tax breaks for such investments to help allay loan interest costs favoured the middle class as a form of welfare at the expense of the poor. Housing has become excessively expensive as a direct result. No doubt government imposts and red tape contribute, but “Negative Gearing” has a lot to answer for and should be phased out expeditiously, because the tax concessions are not egalitarian.

No doubt the Rudd Government promised not to touch Negative Gearing prior to the 2007 Election, fearing a middle class welfare backlash in the polls. And so progressive reductions in the tax breaks need to be instituted, similar to the progressive reductions in tariffs applied to imports to force Australian industry to become more internationally competitive.

 

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