The focus today is on interest rates and
what they mean for mortgages. But what about the cost of housing proper, as
opposed to housing finance? That’s heading up, too.
There’s a basic social equity issue here –
an issue that is now attracting as much attention from the right as the
traditional interest groups such as ACOSS and the National Housing Alliance. Home
ownership is inextricably linked to financial self-reliance, yet home ownership
is becoming harder and harder. What should governments do?
Firstly, they should ditch negative
gearing. It’s made a lot of money for Donald Trump wannabes, and given us lots
of thin-walled inner city apartments – but has distorted the housing market.
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Instead, we could adopt the US system
of tax deductibility for interest on the primary residence (capped at, say, $1
million). This means that younger people, particularly in Sydney, will get a
chance at actually owning a place with a nice big cheque from the tax man every
year to help them with their payments.
Second, we should let first homebuyers use
their superannuation for a home purchase. Yes, the fund managers will complain,
but they’ve grown fat and lazy in the knowledge that no matter how incompetent
they are they will still get guaranteed inflows. If anything this will force
greater market efficiencies as at the moment the funds have so much cash they
have to put it in the market, even if it looks expensive.
Property developers won’t be keen on such
an idea, but they rank even lower in surveys of the reputation of professions
than politicians. That shouldn’t scare governments.
People with investment properties will need
more delicate handling. They have made investment decisions based on existing
laws. Their concerns can be dealt with by sunset clauses providing for tax deductibility
on an existing portfolio when the law changes. In the medium-long term these
moves will probably be a positive for them as it would deal with the excess
capacity arguments and help support sustainable price increases.
But government should think of the winners.
They won’t just be young voters looking to get into the housing market. They’ll
love it – and so will their parents and grandparents. Most of them don’t have
negatively geared property. And while they’ve seen the value of their houses
rise, they are increasingly concerned about how their children are going to
follow in their steps.