Home music industry here’s a way to keep house prices from rising so fast

here’s a way to keep house prices from rising so fast

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The number of bidders is, of course, strongly influenced by migration, which took off during the pandemic. But the floodgates are open on how much money the buyers who are active in the market can auction. It depends on several factors, including accumulated savings, availability of credit, the cost of that credit, and the relative attractiveness of the property compared to other asset classes as a vehicle for investing money.

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COVID has actually increased savings, thanks to generous support and fewer opportunities to spend money. Banks remain determined to lend. The Reserve Bank has cut interest rates to near zero and is buying bonds to lower other interest rates. It is no longer difficult to find mortgage loans with a “1” in front, especially at a fixed rate.

So buyers can afford to borrow more. And what do Australians generally do when credit becomes cheaper? Are we starting our own businesses? No, idiot! We invest in real estate!

Why? Because the tax system explicitly rewards us for it.

And it’s not just the ability to invest negatively in investment property and take advantage of a 50% tax exemption on capital gains. Indeed, it is not the investors who are at the origin of the increases in house prices expected today.

These are largely first-time buyers – at least the lucky ones who have savings and access to credit. These buyers know that they will pay absolutely no tax on any capital gains they realize on their home. Upon retirement, the value of their assets will be excluded from the retirement assets test. When they die, they can pass the property tax free to their children.

While other countries, like Britain, impose inheritance tax, the Australian federal government does not have such a revenue base to draw upon. As a result, Australians pay relatively higher income tax levels than other countries and our societies relatively higher tax rates (albeit with deductions for many).

Therefore, our relatively light approach to taxing accumulated wealth not only increases inequality, but also penalizes Australians who work hard in their working lives. This is madness.

There is so much we could do to stop the rapid escalation in property values. We could obviously better plan and increase the supply of new housing, especially for low-income people.

We could reduce concessions on investment properties and force Australian homeowners to dip into more of the capital accumulated in their homes to fund their retirement. We could impose taxes on the family home or inheritance to shift the burden of taxation onto wealth and not income.

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But the policy is simply seen as too evil. Labor appears to have given up, convinced it cannot win the seats it needs to take over the government while pushing a program to calm property speculation.

The ultimate craziness of it all is that no one really gets richer from it all. Unless you intend to become homeless, the rising prices will only make your next home more expensive.

Of course, homeowners can use the equity in their home to put their kids on the property ladder, while the less fortunate kids in the parental lotto are hopelessly left behind. Growing home values ​​make us a nation increasingly divided between the haves and have-nots.

It’s a mess entirely of our own making. We could choose to change it, if we wanted to. But we don’t. Maybe we are secretly profiting from these price gains more than we want to admit?

Shame on us.

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