Housing, Henry and the new class divide

Restrictions on negative gearing could also pressure more landlords to raise rents to the point that assets were covering their own costs, rather than relying on offset tax breaks to cover losses. Higher rents in this market would be about as welcome as a fart in a spacesuit to families or low income workers already struggling with their existing level of rents.

Henry went further in terms of addressing the issues of housing affordability, housing supply, infrastructure levies, aspects of property taxation generally (namely land tax versus stamp duty, where he leant to the former) and intergovernmental issues, but in the main, these were left in a too hard basket (also known as suggesting they be referred to COAG). Solving the inevitable political squabbles than infect inter-jurisdictional relationships is for the realm of futurists, not economists.

The extent of recommendations proposed by Henry, compared to the relatively minor number of actions likely to be taken by the government, suggest that there is a great deal more to come, probably after the election. A “second wave” of reform perhaps?

A wild card?

So negative gearing escaped unscathed for the time being, if only to preserve the delicate state of the economy at present. Despite its faults, it has at least brought billions of dollars of private capital into the rental housing market, without which, a great deal more Australians could be reliant on government welfare.

But is there another wild card in the pack? Henry touched on it in recommendation number 25: “While no recommendation is made on the possible introduction of a tax on bequests, the government should promote further study and community discussion of the options.”

Death duties were abolished in Australia back in 1979 but it could still be an elephant in the room. As our population ages and increasingly carries with it into the ageing process a larger and larger property portfolio, there is an inevitable time when even the new landed gentry must leave behind this mortal coil and shuffle off. They can’t take their investment property with them, but they can will it to their descendents.

Go back to that Bankwest report, which said: "One in 10 homes owned by households will potentially be given away by 2025, which represents an unprecedented baton change in intergeneration wealth, the likes of which we have never seen before." The national value of that baton change is $400 billion. (That’s billion with a ‘b’ not million with an ‘m’).

The Federal Treasurer could perhaps find some aspects of this $400 billion worth of intergenerational asset movement interesting, as Treasurers do. Remember the saying: “never stand between a Treasurer and a bucket of money” (just ask the mining lobby).

It’s not likely to feature on any election agenda but the words “promote further study and community discussion of the options” might suggest the issue could reappear. The saving grace may be the political reality of just what deep emotions such a discussion might stir. In Sir Humphrey’s words:

"It is axiomatic in government that hornets' nests should be left unstirred, cans of worms should remain unopened, and cats should be left firmly in bags and not set among the pigeons. Ministers should also leave boats unrocked, nettles ungrasped, refrain from taking bulls by the horns, and resolutely turn their backs to the music."

In the case of Henry and the government, so far so good. Music, what music?

Let’s hope an inheritance tax on real estate isn’t on the cards. But if it’s to be avoided, something needs to be done to bring balance back into our housing markets, and the answer there lies not with Ken Henry or Wayne Swan but with planning ministers and land use policy makers in state and local governments.