It is said that those who fail to learn the lessons of history are destined to repeat those same mistakes. That seems to be the case with the call by the Australian Council of Social Services ( ACOSS ) for the repeal of negative gearing legislation.
The Hawke government in the 1980's did just that - and investors fled the rental housing market. It was quickly reinstated and housing rental stocks began to climb. The industry is adamant that without negative gearing to provide tax relief the present parlous housing start situation would deteriorated further.
The ACOSS argument seems to be aimed at closing that tax loophole to generate more tax revenue to be used to alleviate homelessness and mental health, which tends to acerbate domestic violence and sexual assault. This seems to be a call to create a bigger tax dividend and use that for an increase in public housing paid for from the public purse.
Many economists would shudder at the thought of the government becoming the primary source of rental accommodation. In comparison to the cost of doing business, comparing the government with private enterprise is like entering an elephant in this years Melbourne cup. The elephant is certainly big and powerful, but it moves slowly and it tends to do a great deal of damage to everything in it's path.
We had a price bubble affecting housing generally just prior to the 2008 meltdown. The government treasury is facing an awkward dilemma in trying to balance the needs of existing home owners with those who are yet to enter the market. Many first home buyers ended up with a mortgage far in excess of what their property is now worth, and current prices are too high to allow new first home buyers to get on the first rung of the ownership ladder. Market forces are weeding out those who were granted impossible loans in relation to incomes by way of foreclosures and generally the situation is stabilising.
The biggest hurdle to affordable house prices is the cost of land. There is certainly a land shortage adjacent to the big cities, but the same price surge has also occurred in country towns and villages, where vacant land is plentiful. The way to drive down home prices is fairly simple. Increase land releases for housing in such a quantity that availability influences pricing.
It will be a tricky balancing act. Relief by way of stamp duty suspensions and conveyancing costs can sway buyers to new housing in preference to the existing homes market, but it is essential that existing homes hold their value. Most people have a big proportion of their wealth invested in the home they own and should this crash badly the flow-on would be catastrophic.
ACOSS should understand that if land prices are allowed to continue upward, then many existing homes will be demolished to provide a site for a newer and bigger home - and consequently the opportunity to increase the rental market will be lost. Each new home built on a greenfield lot releases an existing home - and many of these will be snapped up by investors for leasing - provided negative gearing supplies the tax incentive.
Ending negative gearing and throwing the entire public housing need onto the government would be similar to backing that elephant to win the Melbourne cup !
No comments:
Post a Comment