- Tax breaks for housing investors have lured more than a million Australians to invest in houses or flats, renting them at a loss, using the losses to reduce their tax (known as negative gearing), and then relying on capital gains, which are lightly taxed, to make the investment pay. Last year alone, housing investors borrowed $75 billion to buy existing houses, flats and units, up from $25 billion a decade ago and $2.5 billion 20 years ago. Investors' share of home lending, excluding refinancing, has doubled from 20% in the 1980s to 40% over recent years. That is a huge change in the market, and much of it has been at the cost of first home buyers. Their share of new lending has shrunk from 19% to 14% in that time. People without deep pockets now have to keep renting rather than buy.
- Local opposition to redevelopment of inner and middle suburban areas has led to serious shortages of supply, relative to the demand from people wanting to live close to the city. Land is finite, and when buildings can't go up, prices go up.
- On the outskirts, shortages of serviced land in some cities, coupled with heavy state government charges to supply infrastructure, have been blamed for driving prices up. They certainly help explain why an outersuburban block in Sydney costs much more than in Melbourne, but it is not clear that they explain why prices have soared in inner and middle-suburban areas.
- The Commonwealth and state governments have largely abandoned their former role as financiers and builders of new housing. In the booming 1950s, they built 20% of all new homes. Now they build 2%, and no one has picked their role as a supplier of affordable housing. No wonder Kevin Rudd says the issue of housing affordability is now "at a critical point". And it is likely to get worse.
Labor's central promises are:
- The national rental affordability scheme, aimed at reducing rents and increasing housing supply. This will offer $500 million over five years in tax breaks for investors who build rental housing, and then rent it out at 20% below market prices for the area. Yesterday Rudd reaffirmed this, and extended it to promise a second $500 million over the next five years (or from 2011-12, if the first tranche is used up by then).
- First home saver accounts, aimed at supporting aspiring buyers who have the discipline to save. Would-be buyers who save 10% of their earnings each year for five years will receive government contributions of up to $5000 towards their deposit.
- The housing affordability fund, aimed at reducing the cost of new blocks by investing $500 million to help states and councils fund the provision of infrastructure. Rudd announced yesterday that the first slice will provide $30 million to provide online services by which you can track the progress of your application for planning approval.
- Release surplus Commonwealth land for new housing.
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