Inflated expectations

Michael Potter

12 May 2017 | Ideas@TheCentre

MP housing house affordability rentThe Budget measures relating to housing are a case study in how to fail in meeting expectations. The government unwisely generated, then inflated, expectations that there would be major solutions to housing affordability in the Budget.

But we haven’t got those solutions. Instead we have a hodge-podge of measures that help and hinder the problem simultaneously. On the help side, the main funding agreement for the states will be reformed to cajole them into reforming planning laws and increasing housing supply. About time too.

The new Housing Finance and Investment Corporation (HFIC) for social housing could be worthwhile as long as it doesn’t have government backing.

There are also changes to super to facilitate saving for deposits by home owners, and downsizing by retirees, but these will make the super system even more complex.

However, the ‘hinder’ side of the ledger is long. There are several increased taxes on housing investors, particularly foreign investors. Tax deductions for travel to investor housing will be denied, as will depreciation deductions for plant and equipment installed by previous owners of housing. Foreign investors will pay more capital gains tax (CGT) and an extra levy on properties left vacant, while there will be added restrictions on housing purchases by foreigners.

And the big tax on big banks, worth $6.2 billion over four years, will flow through to higher mortgage rates, harming housing affordability and investment.

These measures send a totally mixed message when other measures purport to promote housing investment, including through reduced CGT on investment in affordable housing and the previously mentioned HFIC.

There is also $1 billion for a National Housing Infrastructure Facility, but this is unnecessary as the states should undertake housing-related infrastructure investment themselves — and lose funding if they don’t.

Overall, if the housing measures in the budget demonstrate anything, it is how mismanaging expectations can generate policies that are more bad than good.

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