What caused the Housing Crisis, and how do we fix it? | Ask an Economist

The only economists who have useful answers Richard and Matt, even entertaining, stand up econ, but sitting

This could quite easily have turned out to be a Clarke and Dawe interview. Classic.

You guys are my favourite pairing on this channel, you bounce so well off each other, all this stuff is so much more palatable with a good dose of humour!

Very few countries allow negative gearing tax breaks , the rest do just fine without it. The CGT discounts are another matter. This is another facet of the rancid legacy left by little johnny howard. Speculators get tax breaks and work/production cops it in the neck. You could not come up with a more socially and economically corrosive policy if your tried. You would introduce CGT discounts if you wanted to chop your country off at the knees. Money has walked out of work/production ever since honest john introduced it. It turbocharged negative gearing and is the root cause of our insane real estate prices and housing crisis, these insane prices are reflected in commercial property where they are a colossal brake on business. Cut the CGT discounts and get investors with tax breaks right out of real estate. They already have enough sand pits to play in. Like most problems this country faces today, if you drill down you will find the root cause lays right at the feet of little johnny howard. He ruined this country, did more damage to the social and economic fabric of it than any other PM.

As a kid who grew up in Army married quarters houses, (with two sisters and parents), the DHA is a good idea to extend; as long as you don't mind quite modest houses. For a family they typically had three smallish bedrooms, a combined dining and lounge room, an outside laundry, and one toilet/bathroom. They were about half the area of a family home today, but they did the job. But if want a two storey McMansion..... why should the rest of us care about your 'wants' as well as your 'needs'. They're not quite telling the whole story on negative gearing and capital gains tax discount. Let me explain: (i) In the USA you can claim a tax deduction on your loan repayments for the home you live in. That encourages buying property as a residence. You can only negative gear against your rental income, not against any income you make. BTW their housing is cheaper than ours, so much so that the combined cost of equivalent housing and health insurance (not cheap in the USA) is usually less overall in the USA than in Australia. (ii) Capital gains tax (CGT) discount was to make the maths easier. Imagine if you bought any asset (apart from the home you live in) 30 years ago for $200,000, and sold it now for $800,000. That's a capital gain of $600,000, so you owe CGT on it. But the value of money has changed in that time. $200,000 way back then might be worth $500,000 today, so in 'real value' the capital gain is only $300,000. There is no CGT on the sale of your own home - (and there are rules about 'what if you bought it and lived in it for a while, then moved interstate and rented it out as an investment property, etc.) The capital gains discount says "let's cut the dollar difference between what you paid and what you got by half, and we'll say that makes up for the loss of value of your money". If you don't do that, you have to calculate the 'real value' of the money when you bought it. That's quite possible to do, but it gets complicated when you have to take things into account like investment property improvements you made along the way, each with their own different 'real dollar value'. It's a pain. There was no capital gains tax before 1985, and the CGT discount was introduced in 1999; that is, back in an era when inflation was high, so the value of money was dropping fast, much faster than recently (like 17-18%). Get rid of the discount and you need to either drop CGT altogether (which favours those already with assets), change the discount rate (but what is fair), or calculate it exactly (favours your accountant's income). Also need to be careful about fiddling with NG and CGT. Make it less attractive to own investment property and the number of available rental properties declines, because richer people invest more in businesses, shares or whatever instead, and renters can't find a place. Personally I like the way the USA does it with tax deductions against your own home loan interest (alleluia!!!), and being able to only negative gear against investment property rental income, not your total income. There's other stuff going on as well. Like we need to build a lot more more houses; but tell our kids "you need to go to Uni to get good job" instead of "have you ever thought of becoming a tradie?"

Australia should be a paradise for ordinary people, instead we have 1% owniing 25% of rental properties. Its so depressing.

And just remember that past federal oppositions (ALP) have proposed significant (but not perfect) reductions in the negative gearing and CGT discount only to be punished in the election for doing so. The continuation of this problem is not entirely the fault of the federal government. We the voters are partly to blame.

The banks are the biggest investors in houses and will make the government keep the price going up because at the end of the day they make the most money in housing

When advocating for removal of the CGT discount keep in mind that the tax is paid on the entire gain in one financial year, even though the gain has been earned over many years, often decades. The income tax scales ensure that the total gain is mostly or even entirely taxed at the top tax bracket, even though in a normal year the taxpayer's marginal tax rate may be 2 brackets lower. Just went through that experience with an investment property and it hurt, albeit softened by the 50% CGT discount for long term assets.That's where shares beat housing, because you can sell just enough shares each year to not move up a tax bracket, or you can sell just enough to top up your concessional super contribution to the maximum $27.5k p.a., paying only 15% contribution tax.

Australian 🇦🇺 housing policy is a joke and this is the best summary of it. Well done guys!

The historically low rental availability indicates that negative gearing and reduced capital gains tax might not be the primary drivers of the housing crisis. Instead, the issue is likely exacerbated by rapid population growth due to migration and regulatory constraints that hinder new housing development.

Investment properties are run as a business. Ongoing taxes payable are subject to normal expenses vs income results. Negative gearing only allows for interest charges on any associated loans and that is set by the reserve bank. If the loan is at a higer interest rate, then no negative gearing applies to the difference. If there is no loan, there is no negative gearing. Capital gains is a tax on total overall profit at sale time. This tax is way more than company tax. So it is much better to invest in things that are not subject to capital gains tax and just pay the company taxes on profits. Land taxes in Vic have just gone up 150%. On my investment property this represents 80% of the rent i recieve. By law i am not allowed to increase the rent to cover these new taxes. I still have insurances, rates, maintenance etc to pay. All in all, property investment is not a good return.

Thanks John Howard.

Aside from what you have said, it needs to be linked to a drastic reduction in immigration levels. A suite of changes needs to be implemented in order to stop this rampant greed. It's gone on for too long and the suffering in our communities and on the environment needs to be stopped now!

Yes, Cui Bono. Who benefits. Ian Goodenough LNP W.A. is the Parliament winner with 10 investment properties. LNP 102 and Labor 60 investment properties from the Parliament register of interests. The Tax summit in 1985, changed Negative gearing from the family home to rental properties. Maybe restore that to the family home only, as it is in other countries that have negative gearing, like the U.S.A.

in my opinion, Grandfather current negative gearing, only allow new negative gearing schemes on new home builds, developed the department of public housing which should build non for profit or minimum profit homes to market, allow first home buyers to use superannuation as home deposits, introduce some small capital gains tax on the sale of primary residents instead of full exception, limit/cap foreign investments into housing/property/land by enforcing a 50 year sale/or return to Australian body, Australian citizen or permanent residence, offer rent to buy schemes for people in the current public housing scheme just some ideas that might help. I mean just look at Singapore, Much higher GPD, Higher avg earnings, Higher costs of living, Higher population density, Much smaller land mass, Skills shortage and BAM! somehow affordable housing! How did they do it? schemes similar to what is written above.

There's a third factor as well which is tied intimately to Capital Gains and Negative Gearing, and that is Interest Only Loans, where investors never pay off the loan itself, only the interest that accrues.

Australia cannot continue to have a tax system where you win at the beginning with negative gearing and win at the end with Capital Gains Tax. This not to mention depreciation. Everyone must PAY their FAIR share.

One the biggest problems impacting housing affordability is the astronomical cost of construction — due to the insane power and corruption of the building unions. Love to see some analysis from the Australia Institute on that issue. Sadly that is beyond their level of integrity. Also — government building housing is a fucking crazy idea. Government can barely deliver any service to the public efficiently. Remember such disasters like the school building waste, pink batts…only someone totally divorced from history would recommend that as a solution

If government starts building houses they will take 10 years to build and be 400% over budget. 😂