Housing Affordability
The focus recently has been on housing affordability as our three major cities have been found to be amongst the most expensive in the world for buying a home. The rule of thumb is three times the average household income and we are around six times the average household income.
Now a number of people, including international experts, have said the best thing you could do is free up land for urbanisation more quickly. The artificial scarcity of land is one of the biggest contributors to pricing it is thought, and it is simple supply and demand economics. Now this isn’t about putting highrises on the town belt, but merely speeding up the consent process for areas where houses will eventually be built anyway.
Jordan has another proposal though. To introduce a capital gains tax. Now such taxes can be devastating as they can tax you on paper profits you don’t have. Let’s look at two scenarios.
The first is where you get taxed every year on your capital gain. Now let’s say your household income is $80,000 and you have purchased a $300,000 house. Now let’s say it increases in value by $50,000 over the year. Bang on capital gains tax of 39% and bang you have to pay Dr Cullen $19,000 or so extra tax. Never mind you don’t have the $19,000 – you have to mortgage your house some more against the extra value. Oh yeah and no family holiday.
The second is where you get taxed only when you realise the “gain”. Now let’s say this family buy the house for $300,000. And six years later it is valued at $550,000 which they sell it at. If the CGT is at the top tax rate of 39% then bang Dr Cullen takes $100,000 off them. And here’s the problem. They are about to have a couple more kids and were moving into a bigger house. That bigger house costs $700,000. They could just afford the extended mortgage but now Dr Cullen takes $100,000 off them for the increase in their house value (yet doesn’t give them anything back to compensate for other houses increasing in value) they can’t afford that new bigger house for their kids. So the kids get no backyard.
So the average family gets pretty rooted under both scenarios. But the good news is Dr Cullen gets a lot more money to bribe people with.