Stamp duty.As house prices rise, so does the money made by State governments via stamp duty, to the extent that some governments become addicted to it. The NSW Government is one that enjoys a very healthy stamp duty revenue, much of it paid for by the very people it says it is concerned about in terms of the high cost of housing. Paul Keating once warned you should never stand between a State Treasurer and a bucket of money. He was right and Stamp Duty is a good example. In NSW it is now a $9 billion per annum bucket. In 2011, it was $3.8 billion.
Land tax.Argued by many economists to offer a more equitable property tax base than stamp duty and other levies, the extension of a broadly based land tax seems off the agenda for discussion, full stop. But any meaningful discussion of housing affordability can't be had without a grown up discussion about property taxes, of which land tax is one.
Infrastructure levies.Introduced mostly in the early 2000s as a "user pays" approach to funding infrastructure associated with new development, these quickly became usury and applied without a transparent connection to the purpose for which they were raised. Councils and State Governments got away with calling them a "developer tax" knowing full well that it was home buyers of new housing that were paying. And pay they did – levies at one point exceeded $100k per dwelling in some parts of NSW. The HIA and other groups still say they can account for a quarter to a third of the cost of a new home. Any serious moves to improve housing affordability must look at the equity of these levies as part of the mix.
Negative gearing. What a hot potato! If this was to be reformed, how would you do so for just housing and exclude other investments? Could you confine reform to limitations in just parts of the Sydney or Melbourne markets, because if you limited this nationally, many struggling regional markets would fall into even deeper holes. It was never intended that negative gearing would see speculators holding large portfolios of rental housing and outbidding new entrants to the extent that now happens, but how to contain what has become an orgy of real estate speculation through negative gearing is now a problem of monumental proportions. Good luck untangling this one.
Population growth. We could slow our immigration to a trickle and try ease demand pressure on housing but this could come at a broader cost to the economy. Or migrants could be directed to settle in regions to ease demand in capital cities, but without regional jobs for them, what would this achieve? The demand side of the equation being population growth is mostly fueled by immigration and until we can get supply in step with demand, this also needs to form part of the discussion around housing affordability. Good luck again with this emotionally charged policy battleground.
Financial reform. The banks, ah what can we say about these great community institutions of conservative and moderate lending, restraint and discipline. Maybe the less said the better. Reform of lending practices has been debated, studied and investigated ad nauseum. While a contributing part of the affordability problem through some of their less savory lending practices, achieving meaningful reforms of mortgage lending practices could be a Sisyphean challenge.
So there you go. If you're a politician who has worked your way through solving all of these issues, you've improved housing affordability by making housing cheaper, through falling house prices. Just think how popular you will be then… in a country so heavily vested in seeing house prices continue to rise.
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