Housing fixes picked apart
An independent economist has warned against rumoured superannuation changes.
Treasurer Scott Morrison made an address to the Australian Housing and Urban Research Institute (AHURI) this week which ruled out the idea of changing negative gearing - wherein investors deduct interest and other costs related to their properties against their other income to reduce their income tax requirements - to ease strains on the housing market.
Mr Morrison argued that such changes would lead to higher rents, and could trigger an economic decline if property prices were to fall.
The Treasurer continues to claim that small-scale, so-called ‘mum and dad’ investors on moderate incomes are the main users of negative gearing tax deductions.
But independent economist Saul Eslake says cutting back negative gearing tax breaks would allow more young Australians to access home ownership.
“First of all, by reducing the competition which would-be first home buyers face from others who get their interest bill subsidised or who are in otherwise advantaged by the tax system, particularly investors,” he told ABC radio.
“There's a certain irony in the Treasurer on the one hand saying negative gearing is OK because lots of nurses, teachers and police do it, but in the very same speech bemoaning the fact that nurses and teachers in particular are unable to buy houses in the communities which they serve.”
Mr Eslake said any conversation about improving housing affordability needed to include limits on negative gearing and/or reducing the capital gains tax discount.
“I believe they are an essential part of making housing more affordable for people who don't already own at least one property,” he said.
“They're not a magic bullet, they need to be accompanied by other measures which will boost supply.”
Mr Eslake said there were some good points in the Treasurer’s speech.
“Some of the things Mr Morrison is proposing in relation, for example, to the bond aggregator based on the UK model of facilitating the raising of debt by not-for-profit housing providers in order to provide more affordable rental housing is an important measure to boost supply,” he told reporters.
Mr Eslake also pointed to state and local government planning changes that could encourage development, and ways to encourage older people to downsize so that more family-sized houses became available.
Reports say the Government is considering allowing first home buyers to raid their superannuation for a housing deposit, but Mr Eslake says that idea is riddled with issues.
“The history of the last 50 years shows that anything which allows people to spend more buying a home than they otherwise would ... ultimately results not in more people owning homes but in homes becoming more expensive,” he said.
“That is, the benefits accrue primarily to those who already own homes, rather than those who don't but would like to.
“It will also of course mean that those people save less through superannuation over their working lives and a result, because of the impact of compound interest, will end up poorer in retirement than they otherwise would have been.”