It will take a bold approach to fix housing affordability: Greg Travers

GUEST OBSERVER

Neither the Government nor the Opposition are being bold enough in their actions to address Australia’s housing crisis.

In particular, the Budget measures intended to encourage investment in affordable housing will do little to change the investment decisions of “mum and dad” investors.

Australian’s have a love affair with property, and a penchant for negative gearing.  If the Government, or the Opposition, was clever, they’d use these tendencies to help resolve Australia’s housing crisis. 

The Government needs to appreciate that investing in affordable housing means lower rental income and lower capital growth. It needs to be as financially attractive for someone to invest in affordable housing, as compared to investing in any other residential property.  This is where tax policy can help.

A key reason for introducing the CGT discount was to encourage capital investments.  Modifying how the CGT discount operates will change the way people invest. Increasing the CGT discount is going down the right path, but an increase from 50 per cent to 60 per cent is not enough to change the investment decisions.

Our bold suggestion: increase the CGT discount to 100 per cent for affordable housing held for 10 years or more.  Make the capital gain tax free.  This will move investment in affordable housing from being a marginal investment decision, to being very attractive.

At the same time, consider reducing the CGT discount on other residential properties from 50 per cent to say 40 per cent, or lower.  Or require a property to be held for five years, rather than one year, before the CGT discount applies.  This change would temper investment into residential property, and reduce speculative investment decisions.  It would also help balance the impact on the Budget.

That is an intelligent policy decision. That is bold, and would start to change people’s investment decisions. 

This change would need to be a long term one.  The CGT discount can become like the superannuation rules, and get changed every Budget. That would only serve to undermine investor confidence.  

If the Government can look to be bold in seriously addressing housing affordability with a scalpel rather than a feather approach, it would really start to make a difference.

Greg Travers is tax director, William Buck Chartered Accountants and Advisors and can be contacted here.