Government is still feeding Australia’s cost of housing crisis

Contributed by Joe Montero

The Parliamentary Budget Office (PBO) has released some information requested by the Greens elating to the cost of negative gearing and capital gains tax discounts. This revealed that it will cost taxpayers a massive $165.58 billion between the 2024-25 and 2033.24 financial years.

Negative gearing is what landlords get when they are not getting rent from tenants. Capital gains tax discounts are the write offs their taxation enjoyed when they sell the property. The bulk of this money goes to corporate landlords.

These provisions have encouraged big time investors to enter the real estate market, making them a major factor in the home cost bubble. Highly inflated property prices and rents are the result. Thus, a corporate grab on government funds feeds the existing home affordability crisis and not a lack of supply, as suggested by the government and real estate industry.

The graph below shows that the gap between real disposable household income and the rea national house prices is widening. The home affordability crisis is getting worse.

Imagine if $165.58 billion was spent on low rent public housing instead. This would force prices and rents to fall. This has not happened for two main reasons. Successive governments have not been willing to cross an industry, especially property developers, who are major   donators to political parties and has an effective lobby. According to a case study by think tank The Centre for Public Integrity, they handed out more than $54 million between 1999 and 2019. This is the tip of the iceberg, because Australia’s disclosure laws have cracks wide enough to drive a truck through.

The other reason is that a large proportion of parliamentarians jumped onto the gravy train and have their own property portfolios. Cutting negative gearing and capital gains tax would hurt their own hip pockets. According to an investigation by the ABC in 2017, this applied to almost half of the members of the Federal Parliament. They have little incentive to upset the gravy train.

Overlay this with an ideological commitment to the worship of the market, and we know why nothing has been done, even though belief in the market should mean no government involvement. But this principle is flexible. It all depends on who gets the benefit.

The Greens have called on the Albanese government to wind back both handouts, in return for support of its Help to Buy scheme, which is currently being held back in the Senate.

This scheme is to enable lower mortgages through shared cost and owners between prospective buyers and the government. It rides on the premise that the problem is a shortage of supply. The main beneficiaries are once again the developers, builders, real estate industry, and the banks who provide the mortgages. For many, and especially first home buyers, the price will still be too high. They will still be locked out. The Help to Buy scheme will be for the better healed.

Nonetheless, a compromise that starts to wind back a major cause of the housing affordability crisis is worthwhile.

And it must be a staged wind back to avoid dislocation to the economy. Other measures must be included. Scaling up government investment in low rent public and cooperative housing would be a good start. The need for lower cost housing for essential workers has already been identified. Interest rates on mortgages could be frozen. Control of rents by imposing a ceiling on what landlords can charge is another worthwhile measure. There can be a limit on how many properties a single landlord can own. This would help remove the corporate induced upward pressure on prices.

Current legislation to encourage built for rent projects by developers stipulates that 10 percent of these homes must be provided at an affordable rent. This means up to a maximum of 75 percent of the market rent. This is not nearly enough to make a real difference.

Don’t expect more action soon. Our politicians are averse to it. Only public opinion and sufficient pressure can make them reconsider.

Be the first to comment on "Government is still feeding Australia’s cost of housing crisis"

Leave a comment

Your email address will not be published.


This site uses Akismet to reduce spam. Learn how your comment data is processed.