The housing affordability problem in Australia is being made worse by unnecessary constraints on home building.

According to the Housing Industry Association’s (HIA) principal economist Tim Reardon, this has prevented the construction of sufficient houses to meet the demand of growing cities.

Hotspotting’s research indicates that the tax burden imposed on the housing industry by all three levels of government is the core problem in the housing affordability issue.

Reardon says that “Increasing the tax burden on housing (such as proposals to change negative gearing and capital gains tax rules, as well as increasing taxes on foreign buyers) will make the problem worse and hinder one of the potential solutions which are increasing the supply of housing.”

“Any new taxes or changes to negative gearing will exacerbate the affordability challenge by discouraging investment in new housing, force up the cost of renting and make it harder for first-home buyers and renters to get into a home,” he says.

“Increasing taxes on housing (through additional stamp duty, means testing negative gearing or increasing capital gains tax) will create more barriers to investing in residential property and so supply will fall.”

“If the supply of housing falls further, the cost of housing will increase for both renters and owner-occupiers, thereby exacerbating the affordability challenge.”

The HIA argue that increasing the supply of housing is the key to addressing affordability. This involves an adequate release of land for new dwellings and increasing the density of housing in metropolitan areas.

Increasing the supply of housing alone will not solve the affordability problem, but it’s part of a suite of measures which together would create a viable solution.

“Increasing the tax imposed on rental housing at a time when there is an inadequate supply of rental accommodation will drive up rental prices further, making it increasingly difficult for first-home buyers to save a deposit,” Reardon says.

“We have seen a significant decline of investors in the housing industry since APRA introduced additional restrictions on investor lending since April 2017.”

The HIA says residential land supply is a core issue. The latest HIA-CoreLogic Residential Land Report shows that the national median lot price rose 6.5% during the September 2017 quarter to reach $267,368.

It says that eliminating red tape and getting rid of punitive taxes like stamp duty would help to lift the supply of land and dwellings, with beneficial impacts on affordability.

By providing independent advice on taxation and financial strategies, our accounting, planning and finance experts help you to maximise the returns on your property investment strategy. Click here to learn more about our financial education strategies for our clients.