In an article published by abc.net.au, Alan Kohler critiqued the shift in housing policy over the past decades, pinpointing 1999 as a pivotal year when housing transitioned primarily into an investment asset.
This shift was marked by the Howard government’s decision to halve the capital gains tax (CGT) – a move Kohler suggested significantly altered the housing market landscape.
Tim Reardon (pictured above), chief economist at HIA, challenged this view, stating, “This conclusion is wrong,” and argued that the change had minimal impact on government tax revenues or investor behaviour.
The 1999 reform under the Howard/Costello government adjusted how capital gains were taxed.
Previously, taxes were calculated on the real capital gain, adjusted for inflation. The reform changed this to a system where only 50% of the nominal gain was taxed, simplifying tax calculations amidst the complexities introduced by online share trading and rapid buying and selling of shares during the dot.com boom.
Reardon said that the introduction of the Goods and Services Tax (GST) on new homes, which coincided with the CGT changes, contributed significantly to the slump in new home constructions.
He suggested that blaming rising house prices solely on tax policies like CGT and GST overlooks broader global economic trends that also saw similar price surges in other developed nations.
Reardon highlighted a critical factor exacerbating the housing crisis: the high costs associated with new home building, driven by government taxes, fees, and charges.
Over the past year, construction costs have surged by 3.4%, reaching a 30.8% increase since the start of the COVID pandemic, according to CoreLogic’s Cordell Construction Cost Index (CCCI).
According to Reardon, these costs account for half of the price of new house and land packages, with the remaining costs stemming from the actual house and land.
This high cost of building new homes restricts supply, inadvertently making housing a more attractive investment option compared to other asset classes.
Reardon advocates for a focus on increasing housing supply rather than imposing higher taxes on housing investments.
He argued that this approach would stabilise house prices and possibly shift investor interest away from the housing market to other sectors. This strategy, he concluded, is essential for resolving the housing shortage and stabilising the market.
Read the HIA media release here.
