The Industry Super Australia Assisting Housing Affordability Discussion Paper 2017 has highlighted how the $14 billion spent on personal tax incentives and first home buyer grants have fuelled unsustainable growth in property markets on the eastern seaboard.
According to the report, 1.2 million Australians own properties that are negatively geared, which “incentivises a culture of borrowing and tax minimisation rather than a disciplined culture of saving and income generation”.
The report also points to CGT acting in tandem with negative gearing, which “encourages investors to allocate too heavily to property and take on too much debt”, distorting “property markets by driving up prices and driving down yield over time”.
Industry Super chief economist and report author, Dr Stephen Anthony, says housing affordability has reached crisis point, particularly in Sydney and Melbourne, with Canberra not too far behind.
“Governments at every level have squandered the opportunity to deal with this, haphazardly introducing policies that, by driving up demand, have made the situation worse,” says Mr Anthony.
“In the past five years, incomes in Sydney have risen 15 per cent on average, but house prices have risen 87 per cent. It’s simply unsustainable.
“Aspects of the housing affordability package currently before the federal parliament fall well short of what’s required.”
Mr Anthony also believes current stamp duties should be abolished in place of a mix of land and betterment taxes, a move that has been mooted before by BDO national tax leader Marcus Leonard.
According to the report, stamp duties disincentivises older Australians looking to downsize, limiting younger families from accessing the stock of larger houses.
Instead, the report calls for owner-occupiers to face a small annual land tax each year, equivalent to a second round of council rates, in line with recommendations from the Henry Review.
The report also called for the introduction of an asset betterment tax where landowners and homeowners lodge a development application that changes the use of a dwelling from one activity to another.
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.