Subsidies for the Rich Skew Housing Market

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Friday, October 25th, 2013
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A new study has found that affluent members of society are the chief beneficiaries of home subsidies provided by the government, leading to a skewing of the housing market.

The new report, issued by the Grattan Institute’s cities program and entitled Renovating Housing Policy, found that homeowners and landlords received the vast majority of government subsidies at $36 billion and $7 billion respectively.

Renters, on the other hand, enjoyed less than $3 billion in housing subsidies from the state – a surprisingly small amount given that this demographic group contains a higher proportion of low-income earners.

Jane-Frances Kelly, the cities program director at the Grattan Institute, points out that only 25 per cent of renters receive any form of government support, contrary to the popular view that low-income tenants enjoy the preponderance of government subsidies for housing.

Home owners, by contrast, enjoy numerous forms of preferential treatment, including exemptions from capital gains tax, from the land tax placed upon landlords and from tax for imputed rent, as well as special preferences when applying for the pension assets tests.

“We were…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,” said Kelly. “It’s hard to see why they need that level of subsidy.”

According to the report, these inequities in levels of government support for different demographic groups serve to inflate real estate prices and. Kelly’s said these inequities skew the housing market, making it far more difficult for younger or less affluent Australians to eventually become home owners themselves.

The report says disproportionate support for owners is changing the demographic distribution of Australia’s urban centres, and as a direct consequence the economics of the job market.

The insecurity experienced by tenants compels Australians to pursue home ownership, which for less affluent members of society means residing in more remote or peripheral areas.

This in turn impedes their mobility and ability to pursue jobs in other areas, which has implications for employment dynamics and quality of life.

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

The report advocates the restoration of more equitable system, with a key initial measure being the replacement at the state level of the stamp duty with a broad-based annual tax on all properties.

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