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How Governments impact the housing market

How Governments impact the housing market

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I am sure your attention (like mine) is caught by news stories on the housing market, and lately it feels like a daily event with a flood of real estate reports as the Federal Election and interest rate changes take centre stage.

Much the commentary is about affordable housing, but have you noticed the debate is not so much about housing itself (ie. shelter and families) but about wealth creation. Why is it that our homes appear to be every government’s main focus of personal wealth creation? There are several other wealth building asset classes available. Perhaps it is because our principal place of residence is a tax haven. It’s free from capital gains tax, land tax and attracts a lower interest rate than most other investments. It also enables us to eliminate the cash drain of rent and ultimately mortgage payments in our older years, which saves Australia some of the cost to support our aging population.

Successive governments have been politically unwilling to change the tax structure around the family home. In fact, governments are getting more and more involved with residential property to the point where the level of intervention is so heavily entrenched it is almost impossible (certainly politically impossible) for it to be unwound. This level of intervention in any market is often expensive and unhelpful in the long run. The intervention is heavily skewed in favour of owner occupiers which is squeezing out investment buyers and now the media is reporting a rental shortage. Consequently, now the push is for more government intervention to support renters like the Greens policy to cap rental growth.

The list of state and government tax and intervention is complicated and differs depending on:

  • Owner occupiers vs investors vs first home buyers
  • Local vs Foreign Investors
  • New vs existing property
  • Higher vs lower income earners
  • City vs County locations
  • Variations between states
  • Variation between the value of the property.

While we hope for less intervention, unfortunately I think it is here to stay.

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