Australian house prices

July 12th, 2014 at 3:00 pm by David Farrar

Stuff reports:

An Australian report that lays the blame for rising on a lack of land for development, rather than a “price bubble”, could have reached the same conclusions here, a free-market think tank says.

The report, by the Sydney-based Centre for Independent Studies, said Australian house prices had risen at an annual rate 3 per cent higher than inflation since the 1970s.

Author Stephen Kirchner said foreign and domestic property investors had been made a scapegoat when the real problem was zoning and planning rules. They restricted the availability of building land and prevented the more intensive development of existing residential areas.

The supply squeeze in Australia was compounded by taxes such as stamp duty and capital gains tax, he said.

Australian house prices have risen at much the same level as New Zealand. What is useful to note is Australia has had a Capital Gains Tax since the 1980s.

So when Labour goes on about how a CGT will magically mean house prices decrease, ask them why has that not worked in Australia?

The solution in both countries is the same. Make more land available. It is about as basic economics as you can get. Artificially restrict the supply of land, and of course the price of land increase.

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29 Responses to “Australian house prices”

  1. mjw (302 comments) says:

    Totally agree about more land, but we should also stop councils using their monopoly position to impose excess charges. They are effectively exploiting a monopoly position to overcharge developers, who pass it on in the cost of homes.

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  2. freedom101 (478 comments) says:

    If Labour’s true agenda was moderating house price increases then they would have restricted their capital gains tax only to housing stock (if indeed the tax would have that effect, which seems very unlikely, judging from the experience of other jurisdictions). They never talk about capital gains on businesses, farms, retirement savings etc. They are fundamentally dishonest in their marketing of the tax. It won’t raise anything from housing, in fact if the correction comes then people will be able to offset their realised capital losses against their other income!

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  3. nickb (3,673 comments) says:

    Capital gains tax will increase house prices but it is disingenuous to say that is a reason why it shouldn’t be introduced. It is almost as disingenuous as the people that claim CGT will reduce prices.

    The best tax system by far is broad base and (very) low rate.

    The non-taxation of capital gains is an enormous and glaring omission in our tax system. I’m always amazed how so many people are happy to pay more tax to fund the tax refunds of property investors and the retirements of farmers.

    A cynic would point you in the direction of our MPs’ Pecuniary Interests Register to show you why we are the only OECD country to not have one.

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  4. wreck1080 (3,787 comments) says:

    Your fallacy is how do you know a CGT hasn’t reduced the level of house price increases in Australia?

    I’m surprised, DPF, you seem like you have studied statistics.

    Maybe Aussie house prices would be double what they are now if they had no CGT at all!!!

    You can’t prove otherwise .

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  5. NeillR (349 comments) says:

    But that doesn’t explain house price inflation in WA. There’s been no shortage of land availability and they have a progressive government that is pro-growth. The elephant in the room of house price inflation is baby-boomers. If you look at age demographics of this group and overlay it on house prices, it corresponds with their life-span. For instance, the first boomers hit 25 in 1970/71 and at this point they began buying houses.
    Prices before the 70′s were static, rising and dropping with economic conditions. Once the boomers came along and began buying houses, they created a self-fulfilling prophecy of “houses prices always go up”. By the early 80s (when they hit 40), they began pouring their money into the sharemarket. After that tanked, they went back to “bricks and mortar” and have been ramping up prices ever since.
    The problem is that boomers started hitting 65 in 2010 and will begin retiring from that point. Many of them continue to work. The issue is that as they retire, if they want to realise cash they will then perpetrate the greatest loss of wealth ever seen in the history of humanity. The bubble needs to be deflated VERY slowly and carefully.

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  6. burt (7,948 comments) says:

    DPF

    So when Labour goes on about how a CGT will magically mean house prices decrease, ask them why has that not worked in Australia?

    Sure, but you could say this for any policies of envy policy the left have ever used recently. It’s always failed, it failed last time it was tried here and it failed elsewhere. Progressive redistributive taxation is the centrepiece of socialism and it always fails. But that’s never stopped them pushing their twisted ideology to folk either too young to have seen it fail themselves or too stupid to notice that Labour governments start brilliantly then fade into recession for National to clean up. Time and time again.

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  7. JMS (313 comments) says:

    The best tax system by far is broad base and (very) low rate.

    The non-taxation of capital gains is an enormous and glaring omission in our tax system. I’m always amazed how so many people are happy to pay more tax to fund the tax refunds of property investors and the retirements of farmers.

    Exactly.

    Our highly distortionary tax system is yet another reason we as a country are so poor.
    Right up there with the RMA.

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  8. nickb (3,673 comments) says:

    Our highly distortionary tax system is yet another reason we as a country are so poor.

    And, as the National Government shows (and indeed with Labour Government with their swiss cheese CGT policy) it is impossible to get a coherent and fair tax system with so many vested interests among our ruling classes

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  9. burt (7,948 comments) says:

    JMS

    the problem with our tax system boils down to only one thing. It seeks to do the same thing as our welfare systems. Redistributive progressive rates and targeted benefits social engineering people’s incomes.

    Progressive income tax and middle income welfare, the giant money churn designed to keep you voting for more progressive policies to counter balance the already failing progressive policies.

    Chin up, accountants and tax advisors, developers and speculators will be booming again if Labour get back into office.

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  10. dog_eat_dog (757 comments) says:

    Actually Freedom101, Labour’s tax package will ringfence all property investment losses, be they on revenue account or under the CGT regime. That’s the bit no one is talking about.

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  11. Anthony (784 comments) says:

    Of course the CGT could have had some moderating effect as has been pointed out.

    However, CGTs are not very effective at deterring property investors (who typically buy existing houses so do nothing to increase supply despite what they might say) because they can still negatively gear and pay no tax until realisation. What you need is an annual land tax on landlords that will hit the negative gearers in the pocket.

    The land supply is of course an issue too. Difficult to increase land supply in desirable locations so handy locations will always tend to be higher priced than distant suburbs.

    And why is Labour’s CGT only 15% but not indexed to inflation. It will favour the short term property speculators and hurt the mum and dad investors who want to hold their investment for 20 years until they retire, etc.

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  12. Jaffa (82 comments) says:

    How can there be a shortage of land?

    There is a thousand miles of bloody desert available!

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  13. Odakyu-sen (496 comments) says:

    Australia has a shortage of land! Le gasp!

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  14. OneTrack (2,754 comments) says:

    Why do Labour think that landlords with investment properties won’t just put their rents up to try and make up the costs that the CGT will incur on them?

    Or is that next years crisis?

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  15. Harriet (4,614 comments) says:

    “…..The solution in both countries is the same. Make more land available…..”

    Where I live they have been doing just that [bundaberg/hervey bay]

    The council even has a $7k new home grant – but only applys to homes in new developments where the council is currently PREPARED to put in water and sewage mains.[ in other words - developments go ahead in an orderly progression - two suburbs this year and two different suburbs the next year] Most 4 bedroom, doublr garage house and land packages on about 800sqs start around $290k.

    You can still get 2000sqs single blocks for $100-$150k in some of the suburbs of towns and cities. Where I live that’s 5min by car to the beach.
    You will of course pay the same or more for 800sqs but that is being close to the centre of town and/or a good suburb/street.

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  16. Hugh Pavletich (94 comments) says:

    Do read the Phil Best response to the CIS housing report at MacroBusiness Australia …

    Urban land supply and its effect on house prices | | MacroBusiness

    http://www.macrobusiness.com.au/2014/07/urban-land-supply-and-its-effect-on-house-prices/

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  17. Gulag1917 (765 comments) says:

    The Australia house price bubble will eventually burst. Over inflated prices at poor quality. Urban sprawl is a major problem in some places with extra costs in roads/streets sewerage, water and electricity adding to costs.

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  18. Crusader (292 comments) says:

    Labour’s CGT would “exempt the family home” apparently. So I ought to sell my 2 investment properties (and my present home) and invest the proceeds in a vast mansion in the best part of town and live in it. Stuff the tenants. Why should I get taxed just to provide accommodation for them.

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  19. Southern Raider (1,697 comments) says:

    The Councils need to get some balls and start intensification closer to the CBD. Building apartments and town houses in New Lynn is a joke. They need to put them in desirable places to live where you won’t get ghettos like St Heliers, Newmarket, Parnell etc

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  20. PaulL (5,969 comments) says:

    I don’t think it’s necessarily a good thing to drive large amounts of urban sprawl. I agree we should free up land constraints, but a large part of that needs to be breaking through the NIMBYism in inner Auckland (and other cities). Melbourne has better affordability (than it otherwise would have) because they have oodles of central city apartments. Many young people, people working out of town etc etc love living in the city. This frees up houses with land for people with young families etc, and lets people make choices. One of the problems in Akld is the lack of high and medium density housing.

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  21. Brett Hudson (4,736 comments) says:

    They are effectively exploiting a monopoly position to overcharge developers, who pass it on in the cost of homes.

    Indeed. And Labour cry foul at National’s plans to ensure that “development contributions” are not used for such exploitation.

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  22. wiseowl (798 comments) says:

    It’s all very well to say free up more land.
    just remember in NZ there is only 7% of our land mass that is flat and able to be cultivated.

    How about putting the brakes on immigration.Nationals policy of 80,000 PA is a recipe for major problems.

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  23. Anthony (784 comments) says:

    Most of our farming doesn’t require cultivation! And DPF pointed out a while ago that NZ has one of the smallest amounts of productive land taken up by urban areas!

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  24. william blake (108 comments) says:

    Wise owl bullshit on your geography.

    http://www.fao.org/ag/AGP/AGPC/doc/counprof/newzealand/newzealand2.htm

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  25. burt (7,948 comments) says:

    wiseowl

    Have you noticed the shortage of cars in Howick recently.

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  26. seanmaitland (468 comments) says:

    A CGT as a concept isn’t broadening the tax base – companies already pay bucketloads of tax while they are in operation.

    The real problem in New Zealand is LTC companies, and the ability to claim expenses against your personal salary from an unrelated industry. Get rid of this, and overnight there would be changes.

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  27. nickb (3,673 comments) says:

    The real problem in New Zealand is LTC companies, and the ability to claim expenses against your personal salary from an unrelated industry. Get rid of this, and overnight there would be changes.

    Don’t agree. The reason most people use LTCs is for rental property investment and that is precisely because there is no capital gains tax. The only reason people are happy to make losses to offset against salary is because of the prospect of future capital gains

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  28. muggins (3,117 comments) says:

    What we have to remember, in New Zealand at least, is that it is only in a couple of cities that house prices have kept rising. I live in a provincial city and I can tell you that the house prices here are still below the 2007 peak level.
    Another point. The average price may have increased but this is because fewer lower priced houses are being sold, due to the clamp-down on low deposits.

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  29. Viking2 (11,220 comments) says:

    mjw (194 comments) says:
    July 12th, 2014 at 3:10 pm

    Totally agree about more land, but we should also stop councils using their monopoly position to impose excess charges. They are effectively exploiting a monopoly position to overcharge developers, who pass it on in the cost of homes.
    =======================
    So you would dump those development charges back on the rate payer?

    What a prick, explain to us why an existing ratepayer should fund a new incoming ratepayer, e.g. a new immigrant, into a cheaper house or a more wealthier ratepayer into a new subdivision .
    Councils use that development money to fund all your want to haves as well as the extra compulsory services that you want for your new subdivision.

    Haven’t thought this through much have you?

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