It’s problematic because its a disincentive to selling and moving to a house that better suits their needs (either bigger or smaller), thus freeing up their house for someone else whose needs it meets.
It really just seems it’s incentive after incentive that’s stuffed the market. And because democracy sucks, people vote in their self interest. Which is ridiculous because if you’re selling and buying in the same market, you’re better off if house prices haven’t gone up, as the mortgage you’re paying with the same wage is smaller. Except for investors, whose investment may not have paid off. But that’s why investments are an inherent risk
Will be interesting to see if that person per household figure changes in the upcoming census what with COVID and ever worsening affordability.
That’s my main issue though. We have to get away from thinking of housing as an investment vehicle - even for people who are living in them. They’re a basic human need for every person.
With your scenario, even with a full capital gains bill you’d be walking away with a 340k profit in 10 years. 34k a year just for living in a place. Sure you might have done stuff to improve your place but that’s insane. That’s 30% of the average wage or 50% of the median wage for each year.
Maybe you could do a one off discount of some kind to accommodate people who are genuinely downsizing - but as a general rule it needs to go.
It’s not always an accessible profit though? If I buy a house, live in it for 10 years in which time it doubles in value, then decide to move to another place, I’m buying and selling in the same market, so the place I’m buying has also increased in value. So arguably I’m not realising any gain, it’s a sideways move.
Granted if I’m selling my principal place of residence and not purchasing another place to live in, that’s a gain, but generally that would be people going into retirement homes and the like.
I don’t think we should be scrapping the CGT exemption for your own home, but do think that neg. gearing and the 50% CGT discount after 12 months of holding an investment should be scrapped.
If the concern is flippers that buy a place, live in it for 1 year to qualify for the exemption and then sell, maybe extend the duration for it to qualify as a principal place of residence.
If the goal is simply to curtail property inflation, scrapping the exemption would absolutely achieve that goal.
I just think that you’d also need to grandfather in anyone already in the current system, in the same way that properties purchased pre-CGT (1984?) are exempt regardless of primary purpose.
At that point, I can see some merit in making CGT apply to any gains from property sale, as you would think the market would be regulating prices itself. Prices go up? Pay more tax.
If you grandfather in the current owners regardless it’ll be a generation before it unwinds.
A better solution would be CGT exemption or discount once every 10 years regardless of the # of properties you own. Once you get a CGT benefit, no more for a decade. That would cool off speculative investment pretty damn quick.
I don’t understand how a CGT is a disincentive to moving house.
If you’re needs are for a smaller house, then you probably need the liquidity from selling for daily living (my retired mum and dad for example). In that case, you can’t exactly borrow against the original property to buy a new one that meets your needs. You could get a mortgage against your existing property and service it with the rental income from your old property, but you’re still back to square one: capital rich, cash poor.
If your need is for a bigger house, you might be able to do the borrowing against one to pay for the other trick, but only if you’ve got the deposit sitting around. More likely, most people will need to sell the old house to put into the loan, like say my coworker who just upsized within the same mcmansion suburb at the back of Albion Park. In that context, you can afford to pay CGT. If you’re a property owner with a deposit for a larger house sitting around, then all the other incentives already incentivise you to invest in a rental property.
Our problem is that people are incentivised to treat houses as investments and you want us to take off one of the minor brakes that stops people being able to buy and sell willy nilly? The US played this game in the noughties already and it doesn’t end well.
Considering how many Australian property investments funds that exist that are geared exclusively towards institutional investors which tells you the kind of purely investment vehicle that housing is now. This isn’t purely a local phenomena either.
The suggestion earlier was to amend CGT and scrap the exemption for your own home. I’m saying that if you did that, you couldn’t also keep stamp duty as is, otherwise nobody would ever move because it would be too costly to do so.
I find it absolutely wild that people want a form of income that’s only available to people with pretty significant wealth in the first place (capital gains) to be either entirely tax-free or come with an automatic 50% discount after a year.
Who gives a shit whether it’s expensive for people who’ve just made hundreds of thousands of dollars for free to move? Where is that kind of consideration in any other part of our tax system or society? If the owner is downsizing, then they’ll still have free cash after tax. If they’re making a ‘sideways’ move then there’s zero benefit to the market at large, and they’ve still earnt free money that should be taxed. If they’re upgrading, why should the taxpayer subsidise it?
The notion that people are entitled to automatically upgrade their home after holding it for a few years is part of the problem.
Tax all capital gains at the recipient’s marginal rate and burn stamp duty to the ground and replace it with land tax.
I’d say the biggest problems with house pricing is that it’s in the government’s best interest for prices to go up (to a certain point). The government gets more and more money out of CGT while also having a decent portion of the electorate beholden to them based on negative gearing. So far, all the policies released by governments in the past decade or so, haven’t gone towards dropping house pricing, instead they’ve allowed pricing to stay up, but also given individuals access to money they wouldn’t have (Super) or discounted the amount of money paid to the government (first home buyers etc.)
What I would suggest needs to be done:
Ban overseas buyers of properties. Granted it makes up 1% of the property market, but if you have issues with affordability, opening up properties to those overseas, especially for investment isn’t exactly a good solution…
Mandate requirements for houses to be actually utilized. ABC reporting that there’s 24,000 empty properties in Sydney and 43,000 throughout NSW. Some are awaiting occupancy due to delays etc. but at the very least, there needs to be proper policing by the government ensuring there’s a time limit between completion and occupancy
Take over the building of high density housing and give it to the government to drive. The government should identify and plan properly for high density housing, rather than leaving it up for private companies that are trying to do it as cheaply as possible. Down the road from us, Melrose Park is coming up and the place is a joke. There’s been no traffic management or transportation plans. They’re going to use West Ryde train station which has zero chance to take on the extra people and the buses going through will barely be able to match the number of people there.
It’s not only in the govt interest because of direct income, but also because the government relies on property income for older people to pay for retirement above and beyond paltry Age Pension payments that don’t actually allow for a dignified quality of life.
There’s a hell of a lot of older people that will be very pissed off if their SMSF investment property income is slugged with any increase in taxes (/decrease in negative gearing etc) to disincentive people funding their retirement that way.
To be sure I’d be pissed if I’d had decades to get on the property ladder cheaply, then spent decades investing my livelihood into a system that subsequently was pared back to be less lucrative. The vast majority of people are pissed when you take away their entitlement to money.
It doesnt mean it should continue however. Put in place some grandfathering, or exceptions for people in certain retirement categories or whatever.
I assume people eg SMSF owners are angry because they are terrified that increasing housing affordabiltiy for average buyers means no more capital gains by necessity. Then a negatively geared asset just becomes a shitty speculative investment that isnt suitable for retirement planning. Which is as it should be.
