For most young families in Australia, the dream of purchasing and owning their own home is almost completely out of reach.
Working and middle class families are increasingly being priced out of the housing market.
Ownership rates for young people aged 25-34 have spiralled downwards in recent years from 60% to 48%.
Young people are being forced to take on levels of debt unimaginable just a few decades ago. With first home buyers making up just 1 out of 7 of all home purchases, we have to do better.
It’s well and truly time someone did something about making housing more affordable in Australia. That’s why Labor has announced a policy that will help level the playing field for first home buyers competing with investors.
Labor will reform negative gearing and the capital tax discount effective from 1 July 2017, a policy which will help put the Australian dream of home ownership back within the reach of middle and working class families.
So how does Negative Gearing affect Housing Affordability?
Negative gearing means that the interest you are paying on a loan for a house (or apartment or any other type of property) is more than the income you make renting that place out.
So say if someone takes out a bank loan and buys a property. And the annual interest payable on the loan is – say – 30,000 dollars.
Then they rent that place out for 500 dollars per week in rent, or 26,000 dollars a year. Together with other expenses, they are making a loss of over 4,000 dollars annually.
In Australia taxpayers can claim the money they are losing as a tax deduction. That is called negative gearing.
Meanwhile the value of that property is still going up, so they can probably sell it for a lot more than they bought it.
No wonder anyone who can afford it seems to be wanting an investment property.
With everyone wanting to buy an investment property – and only a certain number of houses and apartments already built – that means the competition to buy one is fiercer – pushing up the price of a house out of the reach of many people: like first home buyers, young people and people not earning big money.
How unaffordable has Housing become?
Some people say that the cost of housing really has not changed relative to income. They say: “house prices have gone up, sure, but so have salaries.”
But in 1956, the cost of an average house was equivalent to three times the average annual salary, today the cost of an average house is eleven times the annual average salary.
In fact, the average cost of a home today is $695,788.
That’s a lot of money compared the average Australian income.
Certainly incomes should be better in a wealthy country like ours, where the average share of our national wealth is so poorly distributed.
But the issue here is the price of the “Australian dream” of owning your own home.
If we can’t easily increase wages, then we need to ask why buying a house is so unaffordable, and if the housing market is realistic or unfairly weighted towards those buying additional properties and against those trying to enter the market for the first time.
How much does Negative Gearing and Capital Gains Tax cost the country?
According to a recent report from the Grattan Institute, the combination of negative gearing and the 50% discount on CGT comes at an annual cost of $11 billion to the public purse.
With the introduction of the 50% discount on CGT in 1999, Australian landlords went from being profitable to consistently negative.
Daley, J., Wood, D., and Parsonage, H. 2016, Hot property: negative gearing and capital gains tax reform, Grattan Institute. p, 2.
So, who is benefiting from Negative Gearing?
Liberal Federal Treasurer Scott Morrison dismissed as”a complete and utter myth” the notionthat negative gearing chiefly benefits high income earners.
However, a study undertaken by the Australia Institute showed that half of the tax breaks for negative gearing flowed to the top 20% of households whilst almost three-quarters of CGT benefits (73.2%) flowed to the top 10% of households.
M. Grudnoff, 2015, Top Gears: How negative gearing and the capital gains tax discount benefit the top 10 per cent and drive up house prices, The Australia Institute. pp. 4-5.
How many properties are left empty in Australia?
As we know, taxation policies such as Negative Gearing and Capital Gains Tax have encouraged housing investment. But negative gearing has also encouraged many investment property owners to make losses on their properties. For some, this means not renting out their property at all but simply waiting for high capital gains when they sell. Analysis by the City Futures Research Centre at UNSW found that up to 90,000 properties in Sydney were empty at the time of the 2011 census. Reference
Similar research undertaken by Prosper Australia found that 82,724 properties appeared to be vacant across Melbourne in 2014.6 Whilst it is clear that many of these empty properties would not necessarily have ever been available for those on very low incomes, this does highlight how policy distortions can create artificially low vacancy rates in the private rental market which does serve to inflate rents and so lock out those on low incomes. The scale of these vacancies is such that even if 50% of them were due to holiday homes, the remainder could still have accommodated all those who were homeless in the two major capital cities.
C. Cashmore, Speculative Vacancies 8. The empty properties ignored by statistics. Reference
How many people are homeless in Australia?
The 2011 Census estimated that there were 105,237 people who were homeless. Of these, 28,190 were in NSW and 22,789 were in Victoria. Some 25% of homeless people are Aboriginal and Torres Strait Islander, even though their population share is only 2.5%.1 In terms of age, some 42% were aged less than 25, including some 17,845 children aged less than 12 years.
What are the solutions?
If elected at the next election, a Federal Labor Government will:
- Reform negative gearing (on existing housing, which will encourage more construction) – and halving the capital tax discount – to help put the Australian dream of home ownership back in the reach of middle & working class families.
- Facilitate a national uniform vacant property tax on investors who leave properties vacant.
- Level the playing field for buyers by limiting Self Managed Super Funds from borrowing for property purchases and doubling the foreign investment application fees for residential purchases.
- Establish a bond aggregator to increase investment in affordable housing.
- Re-establish the National Housing Supply Council
- Boost homeless support and establish a Safe Housing Fund for women and children escaping domestic and family violence, young people exiting out-of-home care and older women on low incomes who are at risk of homelessness.
- Reinstate a Federal Minister for Housing.
For more information visit: alp.org.au/negativegearing
Labor’s record is strong on housing affordability.
The Andrews Victorian Labor Government program ‘Homes for Victorians’ is currently:
- Supporting people to buy their own home with cuts to stamp duty and increasing the First Home Owner Grant in regional Victoria.
- Allowing first home buyers to co-purchase their home with the Victorian Government.
- Increasing the supply of housing through faster planning measures
- Promoting stability & affordability for renters, make long-term leases a reality [Legislation in progress]
- Increasing and renewing social housing stock improving housing services for Victorians in need
- Charging a vacant residential property tax (VRPT)
For more information visit: premier.vic.gov.au/homes-for-victorians
My Commitment – Michael Danby MP
It’s hard to determine exactly when the “Great Australian Dream” of owning a home became so hard to achieve. However, for many, the prospect of home ownership in Melbourne now must feel like more of a pipe dream.
Some 20 years ago the average house in suburban Melbourne cost buyers three times the annual median income. Today prospective homeowners will need to find 11 times the annual median income before hoping to own a home. In today’s housing climate, the three times median income is now little more than a deposit on a home.
According to the Australian Bureau Of Statistics, 52.3 per cent of Melbourne Ports residents are a part of the rental market, while Victoria’s rental rate is 28.7 per cent. When you also take into account that a large volume of young people are also still living in the family home in order to save, housing affordability is an issue that is of particular concern to this community.
Fortunately, Labor has a plan to address this issue.
While the Liberal Party procrastinate and the Greens Party dither around with a list of “aims” and “principles” whilst avoiding any commitment, Labor is coming up with real policy solutions to make the “Aussie Dream” achievable.
One of the crucial parts of Labor’s policy is to finally address negative gearing. Put simply, negative gearing is a scheme allowing property owners to claim losses on rental properties as tax deductions on their regular taxable income.
This was originally designed to increase investment in housing. In reality it now sees the taxes of those saving for a house ironically being used to fund an existing property owners ability to own multiple properties. Negative gearing is pushing up the price of the house they are saving up to purchase.
Labor is therefore looking to abolish negative gearing on existing properties. It will keep the scheme for new properties to encourage investment in new houses. This plan will enable continued investment while encouraging growth in the building sector, lifting the supply of new properties onto the market and helping to keep the prices down.
Currently 97 per cent of properties negatively geared were purchased from existing housing stock. Labor would like to see this investment shifted to increase supply.
Another factor which sees investment lifting property prices is capital gains tax (CGT) discount. This discount gives investors an advantage by providing a tax incentive for increasing investment.
John Howard and Peter Costello increased the CGT discount in 1999, however since then house prices have skyrocketed and the discount has been one factor adding to property price rises.
Labor understands that, while investment in the housing market in essential, it should not come at the expense of first home buyers. By reducing the CGT discount, we will hopefully attract long-term investors and reduce damaging speculation in the housing market. This will help stabilise house prices and provide renters with a more stability and certainty of tenure.
For those who are struggling with rent whilst trying to save, they should know that Labor also has plans to help keep rental prices down. Labor’s rental policy calls for the implementation of a vacant property tax to stop investors from purchasing properties and leaving them vacant by ensuring there is increased financial incentive for leasing a property.
Vacant properties take leasing opportunities off the market and put further pressure on rental prices. Increasing the number of properties available for rent will help keep rental prices at a minimum and make it easier for people to find housing.
Labor also understands that a housing policy does not only need to deal with new home buyers. There are many doing it tough on our streets who just need a roof over their heads.
While the Greens Party teamed up with the Liberals in Victorian parliament to block the Andrews government’s plan to increase social housing, the federal Labor caucus was announcing plans to boost homeless support and set up a safe housing fund for women and children forced to flee domestic violence and for other community emergency accommodation needs.
The commitment by Labor to address the crucial issue of housing is not just hollow words or an empty slogan. That’s why another crucial part of Labor’s housing policy will be to have somewhere the buck stops.
Labor will reinstate a federal minister for housing and homelessness whose remit will be to co-ordinate every aspect of Labor’s housing policy. The minister will also be in charge of re-establishing the National Housing Supply Council, which will provide an ongoing independent advisory body on how to boost housing supply.
With housing affordability being such an important issue with Melbourne Ports residents, I have been a strong advocate for change within Labor’s federal caucus. I am confident that a Shorten government will have a positive impact on housing affordability while protecting investment.
In the coming weeks you will be hearing more from my office on this subject, however if you have any queries, please do not hesitate to contact my office for further information on 9534 8126.
Federal Member for Melbourne Ports