Community service and housing organisations today called on the Federal Government to resist fighting an election campaign on a platform of inaction on housing affordability. Reform of housing tax concessions is vital to improving access to housing for those currently locked out secure housing, including a growing proportion of young people and people renting. Home ownership rates of young people aged 25-34 have fallen by 13% since the mid-70s.
The groups, including ACOSS, Australian Youth Affairs Coalition, National Shelter, and National Association of Tenants’ Organisations, said:
“Negative gearing and the 50% capital gains tax ‘discount’ have fuelled speculative investment in the property market, driving up prices, rents and household debt. These concessions are economically harmful and must be reformed.
“Just last year the Reserve Bank and APRA clamped down on investor borrowing to take pressure off what many described as a housing ‘bubble’. Now the Government is criticising policies that would stem the speculative investment that caused the problem, without offering its own alternatives.
“Its own commissioned review of the financial system led by David Murray identified that housing tax concessions encourage leveraged and speculative investment and are ‘a potential source of systemic risk for the financial system and the economy’. Excessive borrowing to ‘bet’ on housing price rises has led to Australia having the second highest level of household debt, and among the highest housing prices in the OECD. It has shifted investment from more productive activities.
“The debate on negative gearing has so far focussed almost entirely on the incomes of investors, ignoring the impact of this tax distortion on housing affordability and economic growth.
“Whilst Labor’s policy to restrict negative gearing to new dwellings is a step the right direction, we would go further and remove ‘negative gearing’ from all investments yielding capital gains – both old and new housing investment as well as shares and agricultural schemes. To encourage investment in home construction by institutional investors as well as individuals, negative gearing for housing would be replaced by a simple rebate for new housing investments, especially in affordable homes.
“The debate has finally shifted to housing affordability with the release of yesterday’s report from BIS-Shrapnel. Regrettably, the most important data is missing from that report: who commissioned it? The report’s finding that a $4B to $5B increase in tax would shrink gross domestic product by $19 billion a year is simply not credible.
“The report claims that the move would leave renters, low-income households and young people worse off. If anyone is concerned the impact of rental stress on low income households and young people it is our organisations who are dealing with the aftermath of the current arrangements. Our assessment is that the interests of low and modest income households would be much better served by reform of these unfair concessions, which are locking more and more people out of the housing market and has led to widespread rental stress across all our major cities.
“We are also concerned about the tax system encouraging small investors to bank on property investment, at a time of low interest rates. This is big risk for those investors, and not good for their tenants either. We know that small investors with limited equity behind them can face financial ruin if interests rates go up or housing prices no longer ‘boom’. We should be encouraging people on modest incomes to look to superannuation to secure their economic futures, which highlights the importance of major changes to tax concessions, now heavily skewed to higher income people.
“Relying on small investors to increase the supply of housing is also not good for people renting. Small investors are often needing to sell their ‘nest egg’ and at short notice. We need longer term investors in rental properties, to give greater security to renters. Australia needs to fix the tax system to encourage big institutional investors into the property market. Savings from closing down negative gearing, could be used to design a tax incentive ‘fit for purpose’ available to institutional investors for creating housing as a stable investment class.
“The report and the reaction to it has shed more heat than light on these important issues. We cannot allow short term thinking and vested interests to stand in the way of well thought-out tax reform in the national interest.”
Signatories organisations and media Contacts:
ACOSS – Fernando de Freitas 0419 626 155
National Shelter – Adrian Pisarski 0417 975 270
Australian Youth Affairs Coalition – Leo Fieldgrass 0450 427 584
National Association of Tenants’ Organisations – Penny Carr 0418 747 921