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ACT Government Committed to Unaffordable Housing

By arescarti42 - 20 January 2014 44

houses

The good folk over at Macrobusiness have been doing an excellent job over the past week highlighting the ACT Government’s outrageously terrible and damaging policy when it comes to supplying land for new homes (see here, here, and here).

Despite strong population growth, stratospheric house prices, and the ACT Auditor General finding the ACT’s land release program woefully inadequate, the ACT Government announced last week that it would be making the problem even worse by scaling back its land release program. This comes a little more than a month after the limited land release at Lawson saw blocks selling for around $100k over the asking price, at an average of ~$500k per block.

Today the Canberra Times reported that the LDA has decided it will no longer be selling land to developers, giving the Government a complete monopoly on the supply of new blocks.

I personally find this behaviour by the ACT Government unconscionable. The fact of the matter is Canberra is a tiny city blessed with abundant land suitable for residential building, but the Government insists on strangling supply to boost their land sales revenue, putting secure shelter, a fundamental human right, out of reach for an increasingly large segment of the community.

If you care about bringing the Australian dream of home ownership back within reach, then I’d urge you to get in touch with Andrew Barr and your other local members, and let them know.

What’s Your opinion?


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44 Responses to
ACT Government Committed to Unaffordable Housing
1
justsomeaussie 8:08 pm
20 Jan 14
#

In Australia, our government provides incentives for people to buy homes e.g. First home buyers, builders grants, stamp duty concessions etc.

Assumptions:

1. Building houses occurs at a fairly constant rate dependant on demand
2. If supply and high demand are high, prices will rise

Argument:

In Australia there is both high demand and high prices for houses. Our government uses financial incentives for people to enter and stay in the property market.

This maintains a high price for property and only alleviates the supply issue by increasing demand for builders to build more houses.

This seems backward.

It makes more sense to me to increases levels of supply, not through builders building more houses but by encouraging people who own a large number of properties to sell the lower valued houses off.

This could be done by creating a tax disincentive for people to own houses above number x.

By utilising a number of properties rather than a value, people will be able to maintain their equity in the market but can sell the lower valued properties. This should increase supply via encouraging people to sell (those with multiple investment properties) rather than the current policy of encouraging people to buy (those with none)

Lets say x = 4 for arguments sake.

John owns 6 investment properties valued at $3million in total, due to the tax disincentive coming in the new financial year John needs to sell two of his properties. In order to keep the majority of his equity John sells the two cheapest properties allowing them to reenter the property market.

This option keeps the middle/upper end of the market while keeping newer properties entering the market.

I’ve posed this question to two economists and both agreed that the current system only encourages high prices to a point where new people will be unable to enter the market. Both thought that encouraging the sales of properties would be a way to alleviate the demand problem while keeping people’s equity in houses.

Can anyone please provide some feedback about this hypothesis or thoughts and comments?

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2
wildturkeycanoe 8:49 pm
20 Jan 14
#

There goes my dream of building one day in Moncrieff. And what the &^#%^&%^& $500k for 500sqm???? Just the land, not a house and land package mind you.
Still, I can see why they are doing this. Less land available will bump up prices and in turn increase their rates revenue. Extortionists.

Report this comment

3
Shirokuma 8:59 pm
20 Jan 14
#

justsomeaussie said :

In Australia, our government provides incentives for people to buy homes e.g. First home buyers, builders grants, stamp duty concessions etc.

Assumptions:

1. Building houses occurs at a fairly constant rate dependant on demand
2. If supply and high demand are high, prices will rise

Argument:

In Australia there is both high demand and high prices for houses. Our government uses financial incentives for people to enter and stay in the property market.

This maintains a high price for property and only alleviates the supply issue by increasing demand for builders to build more houses.

This seems backward.

It makes more sense to me to increases levels of supply, not through builders building more houses but by encouraging people who own a large number of properties to sell the lower valued houses off.

This could be done by creating a tax disincentive for people to own houses above number x.

By utilising a number of properties rather than a value, people will be able to maintain their equity in the market but can sell the lower valued properties. This should increase supply via encouraging people to sell (those with multiple investment properties) rather than the current policy of encouraging people to buy (those with none)

Lets say x = 4 for arguments sake.

John owns 6 investment properties valued at $3million in total, due to the tax disincentive coming in the new financial year John needs to sell two of his properties. In order to keep the majority of his equity John sells the two cheapest properties allowing them to reenter the property market.

This option keeps the middle/upper end of the market while keeping newer properties entering the market.

I’ve posed this question to two economists and both agreed that the current system only encourages high prices to a point where new people will be unable to enter the market. Both thought that encouraging the sales of properties would be a way to alleviate the demand problem while keeping people’s equity in houses.

Can anyone please provide some feedback about this hypothesis or thoughts and comments?

People with multiple properties become landlords who rent their properties to people who either can’t afford a house or don’t want to buy one, often because they are not planning to stay in an area long term. Negative gearing is an incentive to own multiple houses so there is a supply of rental properties.

Government has moved away from providing public housing for rent. It is expensive and often does not produce good social outcomes.

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4
justsomeaussie 10:41 pm
20 Jan 14
#

Shirokuma said :

People with multiple properties become landlords who rent their properties to people who either can’t afford a house or don’t want to buy one, often because they are not planning to stay in an area long term. Negative gearing is an incentive to own multiple houses so there is a supply of rental properties.

Government has moved away from providing public housing for rent. It is expensive and often does not produce good social outcomes.

I’m confused at what you are actually saying. Surely everyone who owns more than one property is a landlord. I’ve always understood negative gearing to be a bad thing, as in you are claim tax breaks because you are losing money on an investment. Why on earth would the government reward that activity with a tax break?

My entire point is that more incentives to buy are not the option, it should be incentives to sell. If I remember correctly in the 90s only 9% of home owners has at least one investment property other additional money was in shares or other investments. Now days it’s something like 50% of homeowners have at least one IP. So shouldn’t the government be encouraging people to sell up some of their IPs and put the money else where like the share market.

What about where the seller doesn’t pay capital gains tax on properties worth less than 500k (or some sweet spot)?

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5
ksanded 10:49 pm
20 Jan 14
#

Could the government cut stamp duty for retirees? Encourage them out of their big houses and into a flat or apartment? Surely that would bring more properties onto the market.

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6
m_ratt 10:51 pm
20 Jan 14
#

Shirokuma said :

Negative gearing is an incentive to own multiple houses so there is a supply of rental properties.

What a load of s*** – and this is exactly the problem.

The rental market is artificially inflated because of the artificially inflated property market. Many many renters would purchase property if they could afford it, and property investment (and the tax breaks given to property investors) hampers that.

I absolutely disagree with negative gearing. I do support tax deductibility for productive investment, however the purchasing of multiple properties (and receipt of tax benefits to do so) does nothing to improve productivity within the economy, nor does it provide net social benefit.

The ridiculous price of property/housing in this country is doing nothing but saddling ourselves with debt, causing living costs to skyrocket and reducing our ability to be competitive internationally – we’re literally pricing ourselves out of the global market. For the benefit of the few who already ‘invest’ and need to protect their interests.

To continue to fuel this destructive speculative activity is just irresponsible and it saddens me to see it so readily ‘justified’ and instead encouraged.

To go from being able to purchase on one income, to needing two incomes. To go from 20 year mortgages to thirty+ years. Where does it end? Will it eventually require multiple generations of a family to afford to ever pay off a mortgage – will parents need to sign their children up to massive debt before they are born so that they are able to own a house within their lifetime?

Maybe I’m exaggerating – maybe not. Time will tell…..

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7
johnboy 11:00 pm
20 Jan 14
#

Perhaps the biggest point is that thanks to the accounting treatment of public housing stocks any serious decrease in house prices would destroy the ACT Budget.

Report this comment

8
Shirokuma 11:41 pm
20 Jan 14
#

justsomeaussie said :

Shirokuma said :

People with multiple properties become landlords who rent their properties to people who either can’t afford a house or don’t want to buy one, often because they are not planning to stay in an area long term. Negative gearing is an incentive to own multiple houses so there is a supply of rental properties.

Government has moved away from providing public housing for rent. It is expensive and often does not produce good social outcomes.

I’m confused at what you are actually saying. Surely everyone who owns more than one property is a landlord. I’ve always understood negative gearing to be a bad thing, as in you are claim tax breaks because you are losing money on an investment. Why on earth would the government reward that activity with a tax break?

My entire point is that more incentives to buy are not the option, it should be incentives to sell. If I remember correctly in the 90s only 9% of home owners has at least one investment property other additional money was in shares or other investments. Now days it’s something like 50% of homeowners have at least one IP. So shouldn’t the government be encouraging people to sell up some of their IPs and put the money else where like the share market.

What about where the seller doesn’t pay capital gains tax on properties worth less than 500k (or some sweet spot)?

Rather than me try to explain this to you more simply, you could just go google ‘negative gearing’ to find out the positives and negatives of negative gearing, and why your idea of ‘incentives to sell’ is too simplistic.

Report this comment

9
Shirokuma 11:52 pm
20 Jan 14
#

m_ratt said :

Shirokuma said :

Negative gearing is an incentive to own multiple houses so there is a supply of rental properties.

What a load of s*** – and this is exactly the problem.

The rental market is artificially inflated because of the artificially inflated property market. Many many renters would purchase property if they could afford it, and property investment (and the tax breaks given to property investors) hampers that.

I absolutely disagree with negative gearing. I do support tax deductibility for productive investment, however the purchasing of multiple properties (and receipt of tax benefits to do so) does nothing to improve productivity within the economy, nor does it provide net social benefit.

The ridiculous price of property/housing in this country is doing nothing but saddling ourselves with debt, causing living costs to skyrocket and reducing our ability to be competitive internationally – we’re literally pricing ourselves out of the global market. For the benefit of the few who already ‘invest’ and need to protect their interests.

To continue to fuel this destructive speculative activity is just irresponsible and it saddens me to see it so readily ‘justified’ and instead encouraged.

To go from being able to purchase on one income, to needing two incomes. To go from 20 year mortgages to thirty+ years. Where does it end? Will it eventually require multiple generations of a family to afford to ever pay off a mortgage – will parents need to sign their children up to massive debt before they are born so that they are able to own a house within their lifetime?

Maybe I’m exaggerating – maybe not. Time will tell…..

Just because you disagree does not make it untrue – like it or not the policy objective of negative gearing is ultimately to provide the market with a steady rental supply so that government doesn’t need to go out and build expensive public housing.

Negative gearing has positive and negative aspects. Yes, it inflates prices, but so too does limited land releases. Personally, I’m not a fan and there is merit in much of what you say. Certainly there could be limits placed on negative gearing. but I can’t see it being removed altogether. Hawke and Keating tried in about 1985, but brought it back a couple of years later, apparently because the number of rental properties were drying up and rents were rapidly increasing due to lack of supply.

This is not a problem easily solved.

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10
Maya123 12:37 am
21 Jan 14
#

wildturkeycanoe said :

There goes my dream of building one day in Moncrieff. And what the &^#%^&%^& $500k for 500sqm???? Just the land, not a house and land package mind you.
Still, I can see why they are doing this. Less land available will bump up prices and in turn increase their rates revenue. Extortionists.

Why only focus on Moncrieff and new houses? I take it you are a first home buyer. Existing houses and apartments are available for less than that. As an example check Narrabundah on Allhomes. Among the under $500,000 properties there is a three bedroom house for $435,000. It’s far better than my first home; a 99square metre fibro house I bought from a family of five, on a 465 square metre block. That was big enough for a big vegetable garden and several fruit trees. Many people have too great an expectation for a first home. The better house can come later.

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11
HiddenDragon 12:45 am
21 Jan 14
#

johnboy said :

Perhaps the biggest point is that thanks to the accounting treatment of public housing stocks any serious decrease in house prices would destroy the ACT Budget.

Most interesting – some might say that such an eventuality would largely be a case of crystallising, and bringing forward, a big, lurking problem which is already there.

All of this makes somewhat of a mockery of the claims that the planned revenue shift from one-off transaction taxes to annual land taxes will, amongst other things, improve affordability and make Canberra a more attractive place for people to move to. Even before this came up, I had assumed that any incidental private benefits from that revenue shift would tend to end up in pockets other than those suggested, and that the primary purpose of the shift was to lock in windfall revenue levels from the boom years.

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12
justsomeaussie 7:17 am
21 Jan 14
#

Could anyone explain why with a limited supply of houses and high demand the government further increases demand by giving money to people? That FHB Grants and such doesn’t end up in the buyers pocket it ends up at the sellers’ as the market adjusts to individuals having more money to buy.

The market will always charge as much as it can bear. So giving people money and incentatives is the worst thing. We should be encouraging people to sell and move their money into other forms of assets.

Report this comment

13
wildturkeycanoe 7:24 am
21 Jan 14
#

Maya123 said :

wildturkeycanoe said :

There goes my dream of building one day in Moncrieff. And what the &^#%^&%^& $500k for 500sqm???? Just the land, not a house and land package mind you.
Still, I can see why they are doing this. Less land available will bump up prices and in turn increase their rates revenue. Extortionists.

Why only focus on Moncrieff and new houses? I take it you are a first home buyer. Existing houses and apartments are available for less than that. As an example check Narrabundah on Allhomes. Among the under $500,000 properties there is a three bedroom house for $435,000. It’s far better than my first home; a 99square metre fibro house I bought from a family of five, on a 465 square metre block. That was big enough for a big vegetable garden and several fruit trees. Many people have too great an expectation for a first home. The better house can come later.

Nice way to make incorrect assumptions.
No I am not a first home buyer, I already have my first home, a modest 3 bedroom on 460sqm.
I mentioned Moncrieff because when we lived in Gungahlin years ago the area of Moncrieff looked beautiful, with its views toward the south and nice leafy trees [though it probably won’t be so leafy when it gets sud-divided]. It became a dream of ours to one day buy land there and build “our house”, the way we want it, with enough rooms for the kids and enough garage space to fit our cars and camping gear. It’s a dream that may never come true, but if the government is not releasing it for development like it is destined to in the master plan, there isn’t even a hope of that dream getting off the ground.
It is so nice of you to tell me not to wish for better things. Maybe we will stay in our modest 3 bedroom and watch our children fight over study space as they get older and we fill the yard with clutter instead of putting it away into a nice storage area. Apparently wanting nice things isn’t the right thing to do, we should all just accept what we have and be happy. Isn’t that sort of like Communism?
I will take it you work for the government, LDA media division, and are trying out your damage control measures to see if they are effective in calming down the citizens of Canberra who are in outrage at the strangle hold this government has, monopolizing their little territory for profit. Am I close, or is it a mistake to make assumptions based on one sentence a person has said?

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14
rommeldog56 7:54 am
21 Jan 14
#

HiddenDragon said :

johnboy said :

Perhaps the biggest point is that thanks to the accounting treatment of public housing stocks any serious decrease in house prices would destroy the ACT Budget.

Most interesting – some might say that such an eventuality would largely be a case of crystallising, and bringing forward, a big, lurking problem which is already there.

All of this makes somewhat of a mockery of the claims that the planned revenue shift from one-off transaction taxes to annual land taxes will, amongst other things, improve affordability and make Canberra a more attractive place for people to move to. Even before this came up, I had assumed that any incidental private benefits from that revenue shift would tend to end up in pockets other than those suggested, and that the primary purpose of the shift was to lock in windfall revenue levels from the boom years.

Good point HiddenDragon. One that most people have missed in the decision to progressively abolish stamp duty on purchase of a property in the ACT, and parallel increasing of Annual Rates.

I have been writing to the ACT Government for ages about the lack of fairness of the Gallagher/Barr “Fairer Taxation System” because I strongly object to paying my Stamp Duty on purchase of a house here, twice or more. It is a slight of hand by the ACT Government. It is legalised theft.

The progressive abolition of other stamp duty, like on Insurance Policies, will be soaked up in other premium adjustments or simply not passed on in full to ACT consumers. Likewise for abolition of stamp duty on purchase of a house in the ACT. Many self funded retirees in particular will simply have to sell up and move out of the ACT in coming years as the increases to Annual Rates accelerates.

Does anyone seriously believe that less stamp duty on purchase of a house in A.C.T. will make it more affordable ??? Seriously ??? Blocks are over $500K in Lawson. 1st home buyers can not afford that. It just makes it cheaper for the wealthier and 2nd home buyers.

Ratepayers should look past the political spin (which, I admit, the ACT Gov’t are pretty good at !) and do the Math on your Annual Rates. If it is “Revenue Neutral” as Barr/Gallagher claim, then Annual Rates will not able to be contained to the10% “average” increase pa because the ACT Gov’t need to raise more revenue partly to cover the utter rubbish/non cost effective projects they are entering into.

In reality, as has often been observed and reported, in no small part it’s the land release/development policies of the ACT Government that is driving up housing/land prices here beyond belief. The “Fairer Taxation System” introduced by the ACT Gov’t, just seeks to take advantage of that. In future years, I think that the dramatic increases in Annual Rates is a terrible legacy for Barr/Gallagher to be remembered by. As if they care……..

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15
arescarti42 8:33 am
21 Jan 14
#

justsomeaussie said :

It makes more sense to me to increases levels of supply, not through builders building more houses but by encouraging people who own a large number of properties to sell the lower valued houses off.

The problem with this line of thinking is that it doesn’t increase the overall number of houses, it increases the supply of properties for sale whilst reducing the number for rent. The net number of properties available for people to live in stays to same.

If, for example, investors decide to sell 10% of their investment properties, then 10% of renter households now need to buy a new home, cancelling out the effect the increased supply of properties for sale. Of course the way the market works in the real world isn’t quite that simple (not all will buy, the number of households can change, etc.) but the key point is that unless you’re adding to the overall number of houses, then all you’re doing is changing the relative sizes of the rental and owner occupier markets.

To have any significant impact on prices in either the rental or owner occupier markets, you need to increase the overall supply of houses, which can only be done through new construction.

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