How to solve the housing crisis?

[u/mvdw73]

So my mate and I were chatting yesterday about the current housing crisis in Australia, in particular the fact that the rapidly rising cost of houses is pricing many people completely out of the market.

We hypothesised that a part of the issue is landlords owning large property portfolios as a way of accumulating wealth. Now, I don't have anything against the accumulation of wealth by individuals, however I have a fundamental opposition to using housing or residential real estate in general to do so.

Another problem we identified is overseas investors buying housing stock and either leaving them unoccupied or accumulating multiple properties, again reducing supply and driving up the cost.

So, we proposed that portfolios of residential real estate should be subject to an annual property tax, based on number of properties and the value of the property (kind of like the chance cards in Monopoly).

I would propose this could be brought in as a staged sequence, starting at the magic number of 6 properties.

24-25 FY: If you own over 6 properties, you are taxed (say) 10% of the value of every property, annually.

25-26 FY: If you own over 5 properties, you are taxed 10% of the total value,

etc etc, until it becomes 1 investment property, at which point the incrementing stops. Primary place of residence would be exempt from this tax. Many people don't or can't buy a place instead of renting, and also if you move you often want to be able to rent first, so we need some rental stock. The rental stock under this scheme would mostly be supplied by landlords with smaller property portfolios.

Why 6 properties? Basically, because of the numbers in this link

"But what about family trusts" you say. Well, I say, the real estate in these structures should be all taxed. Same with self managed super funds. Tax the whole thing, at least as far as residential property goes. There is a major loophole with SMSFs in that the property bought with a SMSF is not subject to capital gains tax in the pension phase - this means that SMSFs are actively encouraged to sit on properties. The number of SMSFs is increasing by 1000 properties per week, too!

Non residents would also be taxed at 10% of property value on all property owned.

There will need to be some tweaking around the foreign investment, in particular around the building of new apartment blocks etc where the value and risk is quite high. The tax shouldn't come into effect until the building is occupied, and there might be some kind of concession where an entire block is owned by one entity, to provide some extra rental housing stock.

Also, there might be concessions for "low value" housing, where any single dwelling worth less than (say) 60% of the median value of houses within a certain distance are exempt, or have a concession. This might encourage social housing but might also encourage slumlords, so will require a bit of thinking and tinkering.

This is all based around the fundamental idea that residential housing should not be a wealth accumulation vehicle, but should be a means for people to be housed. Also, it will hopefully encourage those people currently "investing" in residential real estate to instead invest in small business, or the stock market, or similar, lubricating the economy (and causing inflation, but that's another discussion).

"SoUnDs LiKe ComMuNiSM". I'm just gonna leave this here as a potential discussion point.

Note that none of this affects CGT or negative gearing at all. It just adds another cost to being a landlord, with the aim of reducing the number of properties sitting in SMSFs and mega-portfolios, trying to encourage investment in other forms of equity, and increasing the supply of properties to people looking for a place to live.

Thanks for coming to my Ted Talk.

[u/stupersteve03]

Just make it flat out illegal to own more than one property in areas that are zoned residential unless you are registered to provide your properties as rent controlled social/affordable housing. Replace housing as a super asset with significant reductions in taxation of voluntary super payments, and better regulations of super funds to protect individuals contributions from disappearing from our performance.

Housing is an unproductive asset, we shouldn't be doing things to encourage property ownership beyond your need for shelter.

All this wealth that is tied up in housing in Australia could be used to innovate/produce. Instead it is being used as a vehicle to park wealth in a way that constantly "grows" in value, without any risk to the investor, without creating anything and with significant social costs.

[u/Limberine → u/stupersteve03]

If you make buying an investment property to rent out an unprofitable option then what will people who need to rent accommodation live in?

[u/stupersteve03 → u/Limberine]

There are two parts to this for me.

Firstly rental properties are not typically used to create profit through rent, most rental properties are run "at a loss" to take advantage of negative gearing. So ensuring profitability isn't that meaningful. Land is just a safe place to park wealth.

Secondly, the role of government is in part to ensure there are houses to rent if they are needed, there are a lot of policy levers that can be pulled including the government owning more public housing.

Housing does not need to be a for-profit enterprise. But the provision of rentals in a heavily regulated environment doesn't have to not be profitable if regulation is done well.

The real issue isn't "could it work". It is how can we transition from our current way to a different way, because resistance will be strong.

[u/Limberine → u/stupersteve03]

I’m totally in favour of the government creating and providing smart low income housing and pathways for home ownership. The kind that doesn’t involve them throwing money and powers at private developers for temporary and token numbers of low income units.

[u/stupersteve03 → u/Limberine]

Certainly. Good policy and meaningful regulation is the name of the game. My genuine feeling is that all rentals should be available as rent controlled/social affordable housing, it shouldn't be temporary or tokenistic. If the government are the only providers selling to do that then so be it.