How can we enable home buyers to compete on a level playing field with investors?

What’s the problem?

Alt text The impact of investors on the housing market is a hot topic. This is partly because investment in housing gets special treatment by Australia’s taxation system with a whole host of incentives. The treatment of stamp duty and land taxes also play a part in the current state of the housing market.

Despite successive government reviews finding that many current incentives distort the housing market, they have persisted. This is much to the frustration of would-be owner-occupiers, and to the disadvantage of low (and even medium) income households.

Eight things you need to know

  • Capital gains are taxed at half the rate of tax on income from rent and work. They are also taxed on point of sale (often years later). This encourages landlords to borrow and spend (‘gearing’), in pursuit of large capital gains. Meanwhile deductions can be deducted annually against other income.

  • Negative gearing is when the cost of borrowing is more than the rent received. Australia’s tax system allows landlords to deduct the costs of negative gearing from their non-rental income which means landlords can spend even more.

  • Successive government reviews (including the Henry Tax Review and the financial system inquiry led by David Murray) have found that many current incentives encourage over-investment and over-leveraging in Australia’s housing market.

  • In the DFA Household Survey for March 2016, it founds that over 1.35 million households aspire to purchase property, 83% are looking for owner occupied, 17% investment. At the moment 21% are actively saving, hoping to buy sometime in the future.

  • The biggest barriers which are stopping potential buyers from purchasing, include that prices are too high (44%), the costs of living (16%) and fear of unemployment (11%).

  • Only 1.1% of households looking to purchase property were expecting to transact within the next 12 months, indicating that the majority are currently disenfranchised from the property market.

-. Home ownership rates have declined since 1981, with the declines greatest amongst young people aged 25 to 34. In 1981, more than 60% of this group owned their own home, compared with 48% in 2011.

  • According to the 12th Annual Demographia International Housing Affordability Survey, the major metropolitan markets of Australia (6.4), New Zealand (9.7) and Hong Kong (19.0) were severely unaffordable. This makes them worse than Canada, Ireland, the United Kingdom and Singapore. Sydney was the second least affordable major market in the global study.

Want more? Watch our infographic video about affordable housing here.

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