Government Puts Home Ownership Further Out of Reach

The Federal Government has once again put home ownership further out of reach for the typical Australian owner / occupier.

In a move meant to increase the availability of affordable housing in Australia the government has provided tax incentives to investors to build 100,000 low-rent properties over the next 10-years. Investors will be able to claim a tax credit of $6000 a year for 10 years on new properties that are rented at 20% below the market rate. But who determines what the “market rate” is? A move like this also has the possibility to drive up the market rate to artificially high rental rates because of the availability of properties available at the “discount” rate.

Already the typical real estate investor in Australia has a huge advantage in terms of buying power over an owner / occupier. This comes partially from the increased borrowing ability that they have because of negative gearing and other tax breaks that investors get that are not available to an owner / occupier.

Previous attempts by the federal government to help with housing affordability have proven to be flops as well. Then the $7000 first home owner’s grant was first introduced in Australia in 2000 median prices on houses in major Australian cities rose by $32000 in average in the following 12 months. The $7000 just enabled people to borrow more and the developers to charge more. It didn’t help much at all with overall housing affordability…

The government needs to put investors and owner / occupiers on equal ground (remove negative gearing and tax breaks for investors), and get out of trying to regulate the housing market. There will certainly be short term pain as the market corrects itself, but the long term affect will be to make the “Australian Dream of Home Ownership” a greater possibility for the upcoming generations.

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One Reply to “Government Puts Home Ownership Further Out of Reach”

  1. Fred@OPC

    Very nice blog. It sounds as though the incentive and incentive area are so large that they are likely to distort local market values to way you say. You would think that a Government economist would be able to point this out!

    It also seems like if the Government is concerned about affordable housing, it might be better to (1) legislate building smaller houses. Many builders build only large houses to maximize profit; (2) provide some demand-side assistance to homebuyers, perhaps in the form of tax breaks.

    But, your point is well taken either way–when they Government gets involved, there are always unintended consequences.

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