• Hannah Phillips

Making Houses Cheaper

Among the political footballs that are going to be kicked around in the lead up to the next general election is housing affordability.

Labor has a number of proposals including changes to negative gearing taxation, the reduction of capital gains tax concessions and the construction of more community housing supported by tax concessions.

As Cameron Murphy of the University of Queensland has shown in a report he’s written for the Australia Institute, there is a cheaper and easier way to provide affordable housing, already implemented in the ACT, for people like first home buyers.

Dr Murphy reveals that about 1,000 Canberra households are currently saving $9 million per year.

Over a ten-year period, compared to renting, the typical family will save 37% of its housing costs.

Since 2008 Canberra citizens have been able to obtain land without an upfront charge and build a house on it.

All they pay is a small annual rent to the government of 2% of the market price. As long as they pay the rent, they can occupy it for life.

The downside for them is that they forgo the increase in the value of the land.

The upside is that it costs them 2% per year instead of the 5% interest rate they would pay if they had a mortgage.

When they sell the home they built on the land they pay out the land value to the government but keep the value of the house.

The argument against this approach is that they give up the windfall of the increase in capital gains that comes about as a result of the appreciation in land values but opponents of this view hold that the capital gain on owner occupied homes is an example of an operating tax shelter that disadvantages people at the bottom of the socio-economic strata.

Offsetting this is that people with limited means can access permanent housing, reduce their rental outgoings and enjoy the other benefits of home ownership.

For the government, it works out pretty much even. What it loses by renting cheaply, it gains as the value of the land goes up.

As Dr Murphy points out: “What makes the scheme in the Australian Capital Territory so radical is that it has been almost entirely ignored in the mainstream policy debate about housing affordability.

Instead, it centres around difficult and expensive policies that have only tiny effects on prices or rents.

For example, building an extra 50,000 houses per year for a decade is estimated to cut prices by just 10% at the decade’s end. It would be a massive task, requiring more than 200,000 workers – or nearly the total workforce of Canberra.

Scott Morrison needs a radical conversation changer, a barbeque stopper, if he is to be competitive at the next election.

He could do worse than announce a new housing policy based on the Canberra approach.

Kate Critchley

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