Of equal, or greater importance, has been Government policy frameworks in Australia, and adjustments to those. (See the 2008 Report of the Senate Select Committee on Housing Affordability for full coverage of this topic.)
I will just highlight here � as many others have before me � that the implementation of concessional capital gains tax (CGT) rates in 1999, followed by the First Home Owners Grant (FHOG) in 2000, which was doubled for a period, hugely stimulated demand for housing when other conditions were conducive, such as relatively low interest rates. This undoubtedly added momentum to the bubble, and spread it throughout the country from its epicentres in Sydney and Melbourne.
Of course, these are not the only policies which have a distorting influence on Australian house markets. Australia has long permitted negative gearing on residential investment properties, whereby an investor can offset losses from a rental property against other income, such as from salaries.
If we go back to the RBA graph, we note that Australia has had high house prices, relative to other countries, since at least 1985. In fact, there were only two or three years when Australia did not have the most expensive houses.
And I would argue that is mostly due to there being a long-term speculative premium in our housing market, there mainly because successive Australian federal governments have endorsed, or even promoted, house price speculation as a completely acceptable wealth creation tool in Australia.
I say promoted because yet another speculator/investor incentive was legislated by the then government just prior to the 2007 federal election � the option to leverage into residential property, as well as other assets, in self-managed superannuation funds. These funds have a maximum of 4 members, usually a wealthy individual, couple or family, and had an average balance at end of year 2007 of $800,000! Moreover, around 30% of funds had a balance of less than $200,000. So there are some very wealthy people that have been given further taxation incentives � through the very significant tax benefits for superannuation � to speculate/invest in residential property.
The very significant disadvantage that first home buyers are at in comparison to property investors, in a very similar government and tax policy environment, was recently highlighted in a paper from the Reserve Bank of New Zealand (Hargreaves 2008).
Thus, it is little wonder that, as the RBA put it, higher income earners tend to gain when house prices rise, but lower income earners tend to �suffer�! (Richards 2008). |
