Housing crisis solution could rest upon property investors
With about half of all new houses built by investors, turning around the housing crisis might require a shift in policy attitude towards 'mum and dad' property investors.
There’s a lot of noise at the moment about potential tax changes, particularly around negative gearing and capital gains tax (CGT).
It’s unsurprising given that these topics seem to resurface at least once or twice a year.
Abolishing negative gearing or increasing CGT could cause one of the biggest house price booms in history. Having said that, there is little to no prospect of it happening.
It was just five years ago that Labor lost the unlosable federal election by going to the polls with a radical negative gearing policy change. The Greens suffered a similar rejection in the most recent election.
Why? Because the majority of Australians instinctively understand that it would be akin to throwing gasoline on the fire that is our housing crisis.
We aren’t even close to building the houses we need to be. Currently, we are building 160,000 homes per annum when we need to build 240,000 homes each year.
That’s the reason we have a housing and affordability crisis in the first place.
As much as 50 per cent of new houses are built by investors.
It’s also worth noting that three out of 10 houses in Australia are rentals, and almost all of them are owned by mum-and-dad property investors. In other words, nearly one in three Australians have a roof over their head thanks to mum-and-dad property investors.
While there is a view that abolishing negative gearing would see investors exiting or not entering the market and therefore lower demand and prices, that view ignores the basic fundamental of demand and supply.
If negative gearing were removed, we’d go from building 160,000 houses per annum to 110,000 houses per annum. With one of the fastest growing populations in the developed world, rents and property values would explode.
When issues around housing supply and affordability are discussed these days, the blame is often pinned on property investors, but the biggest misconception is that every property investor in Australia is wealthy and/or a high-income earner.
The reality is 2.23 million Australians own an investment property, and two-thirds earn $100,000 or less, with half of them aged 50 or younger. Further, the most common occupations of property investors are nurses, accountants, teachers, electricians and administration workers.
Quick solution to the housing crisis
If the government wants a quick solution to the housing crisis, it should offer incentives for mum-and-dad property investors, starting with accelerated depreciation and full deductibility of interest during construction.
Perhaps even fast-track building approvals for investor-led housing.
We need 100,000 houses to fix the housing crisis – you would need just one in 20 mum-and-dad property investors to build one more to solve the problem.
