The cure to Australia's severe housing unaffordability: get rid of tax breaks

By Gerv Tacadena

For some experts, abolishing negative gearing and other tax breaks could cure Australia housing market's unaffordability.

Australia's housing market is considered "severely unaffordable"
and some experts think there is one solution to this problem: abolish negative gearing.

RMIT University urban planning expert Robin Goodman told The New Daily that the major cause of Australia's housing unaffordability is the tax system that encourages homeowners to see property as an investment.

"The biggest single thing the government could do to increase housing affordability is to get rid of negative gearing. So much of our housing is viewed as an investment, and this attitude is based on the fact that it’s a tax break," Goodman said.

Also Read: What’s the future of negative gearing under Labor?

"[W]ell-heeled older people are competing on the housing market with younger people,” she added, saying that negative gearing allows owners to see more value investing in a property rather than in shares, for instance.

This sentiment is backed by a recent study presented to the Reserve Bank of Australia, which shows that a third of Australian households will be better off should negative gearing be abolished.

Melbourne economist Lawrence Uren, one of the authors of the study, told The New Daily that abolishing negative gearing would not necessarily have a huge impact on prices, adding that the fall in house costs would not surpass 5%.

This means scrapping negative gearing would not create a huge dent in the wealth of 70% of households that own their homes, although Uren said the effect on the government depends on any complementary policies.

“If house prices decline and nothing else happens, then 70% of households would be worse off,” he said.

The government could also try to redistribute the tax savings achieved from scrapping negative gearing to households that need it. However, this would leave young, wealthy investors in a bad position.

Citing a 2016 study by the Grattan Institute, The New Daily said scrapping both negative gearing and the 50% capital gains tax concession would save $5.3 billion.

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