Monday, October 21, 2013

Housing. We are supporting the already-rich

High income Australians are the overwhelming beneficiaries of government support for housing a new report has found, turning on its head the popular perception that it’s low income Australians who get the greatest subsidies through rent assistance.

“Only 25 per cent of renters get any support from the government,” says Jane-Frances Kelly the cities program director at the Grattan institute.

“They get none of the support that homeowners get. Even landlords get more.”

Entitled Renovating Housing Policy the report finds that homeowners receive an annual $36 billion per year in subsidies from the government, landlords around $7 billion per year, and renters less than $3 billion.

“We are not arguing that renters should get lots of government subsidies, but we were just really struck by the level of support for owners given that there are so many reasons for these people to own their own houses anyway,” Ms Kelly said. “It’s hard to see why they need that kind of level of subsidy.”

Home owners enjoy an exemption from capital gains tax, an exemption from the land tax faced by landlords, special treatment in applying the pension assets test and an exemption from tax for what is known as imputed rent.

“If a landlord is renting out a place, the landlord pays tax on that rental income,” Ms Kelly said. “Homeowners enjoy the same sort of benefit. It’s as if they pay themselves rent. But they are not taxed on it"...

“We are certainly not recommending that we start to tax those imputed rents, there are very few countries in the world that do that, but the size of that support should be recognised when it comes to calculating how the government skews the housing market.”

The Grattan Institute report finds the scale of the support for owners pushes up house prices, making it harder to for younger and poorer Australians to get into the market.

“Support for owner-occupied housing used to be roughly even across all income groups. Now the highest-income owners get government support of roughly $8000 per year whereas the lowest income owners get a little over $2000.”

The report finds the skewing of support to ownership rather than renting forces people to live further away from the centre of cities than they would like and makes it hard for them to move because they face stamp duties.

“If you are living out on the fringes you often can easily access only small minority of jobs rather than those in the centre. It means employers face a thinner labour market and workers are locked into jobs they might rather not have.”

Ms Kelly said Australian social norms and the state-based rules governing rent give tenants little security. This further drives Australians into owning rather than renting making them less mobile and responsive to the jobs market.

The report recommends that state governments eliminate stamp duty, replacing it with a broad based annual tax on all properties as the Australian Capital Territory has started to do. It recommends a reexamination of the biggest tax breaks for landlords - negative gearing and discounted capital gains tax rates. And it recommends that state governments reform tenancy rules to make them more like those in Europe with long leases that which allow tenants to modify their properties and own pets.

In The Sydney Morning Herald and The Age

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