There’s no silver bullet to rein in house prices

HOME prices have been rising faster than wages for several years, hitting housing affordability despite record low interest rates, and prompting a fresh wave of ideas about how to fix the issue.

Reserve Bank of Australia data shows that since 1985, the price of a home has jumped from about two times our annual household disposable incomes to almost five times.

Investors have taken much of the blame for driving prices higher, resulting in calls to cut tax benefits such as negative gearing and the 50 per cent capital gains tax discount on assets held for more than a year.

Both ideas are political hot potatoes, and some other ideas being suggested may spark some equally fiery debate. Here are a few.

CHANGE THE TAX MIX

Wealth for Life Financial Planning principal Rex Whitford says people perceive the current rules are unfair to first- home buyers and favour investors because only investors receive a tax deduction on their loan interest repayments.

Mr Whitford said a solution could be to make property investment loans only 50 per cent tax deductible while creating new tax incentives for first- home buyers.

“For all first home purchases, the interest on the loan would become tax deductible at 50 per cent,” he said.

CUT STAMP DUTY

Mr Whitford said reductions to state stamp duties could help improve affordability for firsthome buyers.

The lost revenue could be recovered by a 5 per cent sales tax on the disposal of the first home, he said.

John Daley, the CEO of independent think tank The Grattan Institute, said high stamp duties encouraged people to hold on to property longer to avoid changeover costs.

Alternatively, higher annual land taxes would encourage more people to sell excess property, adding to supply and potentially reducing prices, he said.

REMOVE FAMILY HOME EXEMPTION

People with expensive homes benefit greatly from Australia’s age pension rules, which only count the first $ 200,000 of their property in asset test limits.

“They ignore all the rest, which is completely the wrong way around,” Mr Daley said.

He said most public policy groups believed the age pension asset test “should include much more, if not all, of the value of owner- occupied property”.

INCREASE HOUSING SUPPLY

This idea is often put forward but it relies mainly on state governments.

Mr Daley said many households were happy to see planning rules changed and more blocks subdivided, as long as it was not in their own suburb.

He said another commonlysuggested idea – to allow firsthome buyers to access their superannuation as a deposit, would increase demand and prices.

“It sounds great, but in reality it acts as a further transfer ( of wealth) from young people to older people by bidding house prices up.”

As for other radical ideas, Mr Daley said, “if they were silver bullets, we would have fired them by now”.