Submission to People's Commission on Australia's Housing Crisis

The impact of the rapid growth in the number of property investors after the 1999 changes to the capital gains tax regime is also apparent from the significant increase in the proportion of mortgage finance going to investors rather than owner-occupiers (Chart 9). [...] While the decline in interest rates and an easing in the criteria used in making and pricing loans to investors have played a significant part in expanding the demand for residential property as an investment, policy decisions – in particular, the change to the capital gains tax regime in 1999 and the 2007 decision to allow self-managed superannuation funds to borrow in order to purchase property. [...] This gradual narrowing in the ‘gap’ between the growth rate of the housing stock and that of the population – to the point of eliminating it entirely over the past decade – has come in the face of demographic trends that would have warranted a widening of this gap: • average family sizes declined between the early 1960s and the early 1990s, implying that more dwellings are required to accommodate. [...] I think there are two principal reasons for the increasing failure of the stock of housing to grow at a rate commensurate with the growth rate (and changing needs) of the population: 27 First, the direct contribution of the public sector to growing the housing stock has declined substantially. [...] ‘Negative gearing’ Another long-standing policy which I have long argued has not only failed to deliver on its oft-stated rationale of boosting the supply of housing – in this case for rent – but has actually exacerbated the mis-match between the demand for and the supply of housing, as well as having distorted the allocation of capital, and undermined the equity and integrity of the income tax sy.