The Forgotten People’<\/a>\u00a0\u2013 which the Liberal Party holds as a sacred text \u2013 Robert Menzies spoke at length about \u201chomes material, homes human, and homes spiritual\u201d, about how \u201cthe home is the foundation of sanity and sobriety\u201d, and about how the health of the home \u201cdetermines the health of society as a whole\u201d.<\/p>\nBut over the past three-and-a-half decades Australians have come to think of housing not as something which meets these basic human needs, but rather as a vehicle for accumulating wealth \u2013 or, as it is commonly put these days, \u201cgetting ahead\u201d.<\/p>\n
Which, more than anything else, explains why we have not been able to solve our \u201chousing affordability problem\u201d, or to reverse the decline in home ownership which has now been in train for 60 years: because a very large majority of Australians do not want it to be solved, and politicians of all stripes know it.<\/p>\n
That\u2019s why, during last year\u2019s election campaign \u2013 despite it ostensibly being about the \u201ccost of living\u201d, and despite the fact that the cost of housing is the largest single component of the \u201ccost of living\u201d \u2013 the leaders of both major parties said that they wanted house prices to \u201ckeep going up\u201d. And both major parties promised policies which would produce that result \u2013 the 5 per cent deposit scheme in Labor\u2019s case, and the \u201csuper for housing\u201d proposal on the Coalition\u2019s.<\/p>\n
One of the contributors to the deterioration in housing affordability over the past quarter-century \u2013 not the only one, and not necessarily the most important one \u2013 has been the growing presence of investors in the housing market.<\/p>\n
The change to the capital gains tax regime in 1999 greatly enhanced the appeal of \u2018negative gearing\u2019 by transforming it from a strategy which had hitherto been primarily about\u00a0deferring\u00a0tax, to one which facilitated both deferring and\u00a0permanently reducing\u00a0tax, by in effect converting wage and salary income, taxable at full marginal rates in the year in which it was earned, into capital gains taxable at half marginal rates in a year of an investor\u2019s choosing.<\/p>\n
As a result, the proportion of individuals who had property investments rose from 15 per cent in 1999 to over 20 per cent during the 2010s; the proportion of property investors who were \u2018negatively geared\u2019 rose from 51 per cent in 1999 to over 70 per cent by 2008, before declining interest rates made it increasingly difficult to be negatively geared; and the proportion of housing finance going to investors rose from 26 per cent in the second half of the 1990s to over 45 per cent by the mid-2010s.<\/p>\n
More than 80 per cent of that lending to investors went to the purchase of established housing \u2013 that is, housing that we already have \u2013 serving only to push up the price of that housing, and increase the demand for rental housing by out-bidding aspiring home-buyers.<\/p>\n
The changes to \u2018negative gearing\u2019 and the capital gains tax regime announced in the Budget will, if passed by the Parliament, reduce the demand for established housing from investors. And that\u2019s a good thing, not something to be bemoaned. It will reduce the competition that aspiring first home-buyers face, when seeking to buy a home, from investors who can write off their interest costs against their other taxable income.<\/p>\n
Those changes aren\u2019t responsible for the declines in house prices that have occurred in Sydney and Melbourne since the turn of the year, nor for the easing in house price inflation that has occurred elsewhere in recent months. They are, rather, primarily due to the three increases in interest rates which have occurred so far this year, and to widespread expectations that there may be at least one more increase in the second half of this year.<\/p>\n
Interest rates will eventually come down again \u2013 and house prices will eventually go up again, especially if housing supply continues to grow at a slower rate than housing demand. But if dampening the demand from investors for the housing that we already have reduced the rate at which house prices go up, that should be celebrated, not bewailed.<\/p>\n
The views expressed in this article may or may not reflect those of Pearls and Irritations.<\/p>\n","protected":false},"excerpt":{"rendered":"Falling house prices should ease cost-of-living pressures and help first home-buyers, yet Australia\u2019s political debate still treats rising…\n","protected":false},"author":2,"featured_media":481964,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,113,61,60],"class_list":["post-481963","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-ie","tag-ireland"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/481963","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=481963"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/481963\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/481964"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=481963"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=481963"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=481963"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}