Leading affordable housing advocate professor Julian Disney has described Australia’s mansions as on-shore tax havens that suck resources from more productive investments, and called for an end to the “huge distortions” in the way housing is taxed.

“If you have a spare million, the most tax effective way of spending it is to buy a much more expensive house than you need, or renovate it within an inch of its life,” Disney told Crikey this week. “If you don’t have a spare million, then the second best option is to borrow and negatively gear. Increasingly houses have become tax shelters, rather than real shelters.”

A former president of the Australian Council of Social Service and currently chair of the National Affordable Housing Summit, Disney says “excessively generous tax concessions offer lavish benefits for wealthy buyers and speculators”, which have helped inflate house prices and contributed to the nation’s affordability crisis.

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The Housing Industry Association’s chief economist Harley Dale told Crikey he didn’t believe tax concessions were overly generous, and argued affordability could be improved by lowering the cost of new houses, which he described as being over-regulated.

Australia is already one of the least affordable nations in the world in terms of housing costs, and reports this week suggested first-home buyers are being increasingly priced out of buying land blocks on city fringe estates.

The median price of a house has risen from about three times median annual household income a few decades ago, to almost 10 times today, forcing many to abandon the dream of home ownership, and turn to the insecurity of the private rental market.

Unlike Europe, Australia has no tradition of long-term rental leases, or large scale not-for-profit ownership of rental housing stock, a situation the National Rental Affordability Scheme is designed to address, with it’s federal subsidies for developments offering tenants rents at 20% below market value.

A former economic adviser to federal governments, Disney has argued excessive house-price inflation has “greatly weakened” the national economy, causing dangerously high household debt levels, and diverting resources from activities that could improve our trade performance.

He argues Australians are taxed more if they strengthen their financial position through their labour, than via speculation.

Addressing last month’s well-attended Byron Bay public forum on the housing affordability crisis, Disney argued there was a “conspiracy of silence” between the major parties about the distortions in a tax system that helps exclude more and more people from home ownership.

Also chair of the Community Tax Forum, a coalition of unions, consumer and welfare groups, Disney said he’d like to see an end to the land tax exemption for the top 5% of wealthy homes, a winding back of negative gearing, and an end to stamp duty for below average cost homes. He believes Australian dwellings are at least 20% overvalued, but he says he doesn’t want to see “a sharp or quick fall, which would be too disruptive to the economy and community, and would hurt too much those just who’ve just got into the market”.

Interestingly, Harley Dale, from the Housing Industry Association, didn’t baulk at the 20% figure, telling Crikey he concurred with Disney that if there’s going to be relief to home seekers via a decline in prices, “we want to see that decline happen in an orderly way over an extended period of time”.

As for tax reform, the association supports a reduction in stamp duty, and is open to the possibility of changes to land taxes.

*Ray Moynihan chaired last month’s Byron Echo forum on housing affordability

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