In recent years across Australia housing and rent prices have increased, making it harder for students to find affordable housing.

The 2009 Henry Review into Australia’s tax system observed that in 2009 the ratio of rents to average weekly earnings were their highest since the 1980’s, and that the number of rent assistance households paying more than 30% of their income on rent was at its highest since 2000, breaching a commonly accepted measure for ‘housing stress’.

Moreover when students do graduate and move on to gainful employment, realising the Australian dream of home ownership will be harder than ever. Buying a home in 2011 cost 7.3 times the average income, compared to 4.7 in 2001.

Two key levers that have pushed up housing demand are Negative Gearing and Capital Gains Taxes (CGT).

Negative gearing allows for investors to offset rental losses against their income, reducing the tax they pay in order to try and stimulate investment in housing and increase the availability of rental homes. CGT concessions allow investors to claim a 50% discount on any capital gain, as long they’ve held the asset for 12 months.

Critics argue that both schemes encourage over-investment and speculation in the Australian housing market, as any losses incurred from rental properties are made up by the capital gains earned when selling a home. This causes over-investment and speculation in the housing market, pushing up prices and locking out first-home buyers.

Presently, housing affordability and the effects of these two taxes are emerging as a Federal Election issue.

While the Liberal/National coalition government has announced no formal policy, the Turnbull government has publicly considered the option of changes to negative gearing.

The government is considering the idea of capping negative gearing to between $20,000-$50,000. This would limit excessive tax breaks for high-income groups, but ensures that properties can still be negatively geared up to the set cap.

The Labor Party has announced a two-part housing affordability policy, reforming both negative gearing and CGT concessions.

Labor would restrict negative gearing only to new housing and see all currently negatively geared investments “grandfathered”, i.e. currently negatively geared investments would experience no tax changes and still be able to reduce their taxable incomes without limit.

The second component would reduce CGT concessions available to investors from 50% to 25%, reducing the capital gains investors can make from selling any asset and reducing the incentive to invest in housing.

Like Labor, The Greens would grandfather currently negatively geared investments. However they would end negative gearing for all future investments including new housing and completely remove the CGT discount. Part of the increased revenue from these two reforms would fund construction of 7000 homes for the homeless and 7500 social housing dwellings.

These differences raise three issues regarding housing affordability.

Firstly, in the short term no single party policy will significantly increase rent prices. Each party’s policy protects currently negatively geared investments to varying extents, meaning landlords won’t have to shift increased costs onto renters.
Secondly, curbing surging house prices and market speculation requires CGT concession reform.

Housing prices across Australia have increased at an annual rate of 8.4% since 1980. In this environment CGT concessions encourage speculation on the expectation that housing prices will increase, further driving price pressures.

Lastly, no policy adequately addresses supply-side issues relating to housing. In 2012 the National Housing Supply Council reported that there was a shortage of 228,000 dwellings in Australia, with this figure expected to grow each year.

Publicly, Malcolm Turnbull and Treasurer Scott Morrison have indicated that they perceive housing affordability as predominantly supply driven. However, presently no official policy within the government’s Cities portfolio has been announced to address it.

Labor’s policy of limiting negative gearing to newly built homes is significant but likely won’t address the full extent of the issue.

Currently only 5% of negatively geared properties are new homes. It is unlikely that the other 95% of investors will immediately choose to invest in new-housing and raise supply, as it would remain a riskier investment than purchasing existing property. Moreover state and territory-level barriers to development inhibit investment in new housing, even if encouraged by federal negative gearing policies.

Similarly, on balance the Greens policy would help to address homelessness and accessing affordable accommodation for low SES groups, but would not redress the specific problem of increasing housing supply to increase affordability for everyone in the market.

Instead what is required to address housing affordability is a policy approach which addresses not only the demand-side effects of Negative Gearing and CGT, but also works with states and territories who hold most supply-side policy levers to increase the supply of available housing. Tackling housing affordability remains an outstanding issue for government that requires a comprehensive policy solution that involves all levels of government.

Alex Bridges is a member of ‘The Australian Greens’

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