Housing benefits flow to homeowners and the wealthy, but renters miss out

Renting attracts the lowest share of benefits from government housing policies, AAP/Tracey Nearmy

Government housing policies overwhelmingly favour home owners over renters, according to a new report compiled by the Grattan Institute. And scaling back government support would do little to impact home ownership rates.

More than 90% of government expenditure on housing benefited homeowners, around $36 billion per year. Benefits came in the form of capital gains tax and land tax exemptions, pension asset test perk, as well as imputed rent exemptions.

The report – “Renovating Housing Policy” – found the value of imputed rent exemptions in Australia are around $9.6 billion per year. This figure is the implicit rent an owner pays themselves as landlord, a sum that would be taxed if paid by a renter.

Only a few countries, including Switzerland and the Netherlands, tax net imputed rent.

Investors receive around $6.8 billion in benefits per year, mainly in the form of negative gearing and capital gains tax discounts. Renters only benefit from Commonwealth Rent Assistance that reaches a limited number of people who are eligible for other welfare payments.

Report author Jane-Frances Kelly says the rental system is often treated as what is left over after we’ve talked about home ownership.

“There is an implicit assumption that home ownership is good. It’s embedded in our culture,” she said. “We would like people to have a reasonable degree of housing security whether they own or rent.”

Even within these categories, benefits are unevenly distributed. Capital gains tax and land tax exemptions, alongside non-taxation of imputed rents, adds $8,000 per year to the highest income households. But the lowest income households only gain $2,800 per year.

Tax concessions for property investors are equally uneven: the highest income quintile receive $9,200 per year, the lowest receive $3,600.

Pension benefits are less uneven. Couples who own a home face an asset cap of $279,000 (with the home exempt) before the pension is reduced. Couples who don’t own a home have a cap of $404,000. But with the median house price around $600,000 in Sydney, the report concludes the test “heavily favours owner-occupiers”.

And 40% of the expenditure on the age pension goes to households with a net worth over $500,000.

Removing these benefits would not have a significant impact on the rate of home ownership, the report found, because home ownership was still an attractive proposition. Instead, it recommended the removal of stamp duty that “discourages households from moving to housing that better suits their needs.”

The report suggested a broad property tax would create less distortion in the market.

Judith Yates, an associate professor at the University of Sydney and a long-time researcher into housing policy, agreed with the recommendation, and said stamp duty should be removed.

“But I’d hate to remove stamp duty without something replacing it because baby boomers are getting a lot of assets untaxed and at least stamp duty is something they would pay if they did move,” she said. “Land tax is a sensible approach because it makes people recognise what the cost to society of an income-free asset actually is and may help to discourage excess consumption of housing.”

Australia also fared poorly on conditions for renters across a series of factors, even as renting becomes increasingly common. The report suggested preferences were changing as people became less interested in home ownership at any cost, and were happy to rent in areas that are unaffordable to buy but were close to amenities.

“There’s no direct evidence to prove one way or another, but anecdotal evidence suggests that preferences may be changing,” says Kelly. “People don’t want to restrict themselves to living only where they could afford to buy.”

Prof Yates said it was too difficult to separate preferences from constraints.

“From much of the evidence I’ve seen, those who are unconstrained would rather own,” she said. “But income and wealth constraints mean the location choices available to them are not palatable, especially for households who need access to jobs or to various services. They will often prefer to rent where a wider range of employment options is available and where there is better access to services.”

The Grattan report called for reforms including extending the minimum duration of leases, “while still enabling renters to give notice and terminate their tenancy without paying out the entire lease”. It also suggested extending notice periods for lease termination and other measures.

But Prof Yates said having the government assist in providing rental housing where the market wasn’t working well would be a good solution. She suggested not-for-profit and community housing should be encouraged to provide affordable housing with secure tenancy.