And, according to the Commonwealth budget papers, exempting the family home from capital gains tax – including family homes that sell for more than $10 million – will cost more than $60 billion this financial year. Scrapping those tax breaks and building houses for teachers, nurses and police around the country would do wonders for housing supply and public sector recruitment and retention.
But rather than remove the expensive tax breaks that make housing such a popular form of investment, Australian governments typically prefer to find ways to stuff some more money into the pockets of the first home buyers bidding against the investors for the existing housing stock. As our soaring house prices show, all this largesse does is push house prices up even faster as the first home buyers have a bit more to spend in their bidding war with the investors.
The real winners, as always, are those who already own a house or two, or 10.
So, you see, the key to understating the politics of house prices in Australia is to realise that the term “housing affordability” is meaningless. While politicians often talk about the price of petrol, electricity and airfares, you’re unlikely to hear a prime minister or opposition leader talk about “petrol affordability” or the “ratio of electricity prices to median income”. They are certain they prefer low petrol prices and airfares to high ones, but they prattle on about “affordability” with housing because they don’t know whether they want home prices to rise or fall, or they don’t want to make their priorities clear.
The IMF report only added to this econo-babble by describing our housing market as “misaligned”. Indeed, it says Australia has one of the most “misaligned” housing markets in the world with prices and rents well above their long-run averages. But no matter how fancy the new terminology, nothing can hide the simple fact that economists don’t know what the price of a house should be and politicians won’t come clean about whether they want house prices to rise or fall.
Complicated terminology aside, I hope the IMF is right. I think house prices in Australia are too high. If they fell it would be good for our society and our economy. And yes, I am paying off a house.
But it’s easy for me to say I want house prices to fall as I don’t need a majority of people to vote for me at the next election. That means I can ignore the facts that a majority of Australians already own at least one house and that those people like the wealth that rising house prices gives them for free (even while they hate the feeling that their children may never be able to afford one).
The brutal truth for those who don’t own a home is that the Australian housing market, and our housing policies, aren’t as “misaligned” as the IMF suggests. Our housing policies just aren’t aligned with what was once called “the great Australian dream” of universal home ownership.
Economists know how to make housing a lot cheaper, but finding a solution for first home buyers that doesn’t reduce the enormous windfall gains flowing to the wealthiest Australians is the kind of “misalignment” not even the IMF would touch.
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