Finding tomorrow’s hot property, TODAY

Why Houses Are Expensive

Why Houses Are Expensive


Here’s a startling revelation from the Australian Financial Review.

It says that we can’t solve the housing affordability problem by eliminating negative gearing and ditching the so-called capital gains tax discount.

Remarkable. I didn’t anyone, apart from the Greens, was silly enough to seriously suggest that negative gearing was the cause of poor housing affordability.

No one has suggested that it’s capital gains tax concessions, because we don’t have a capital gains tax concession, just a big tax that investors have to pay when they sell a property, but home owners don’t.

And given that over 70% of residential properties are bought by home-buyers and that the strong markets of 2023 were fundamentally driven by home-buyers, with investor activity well below historical norms, very few people are dumb enough to blame investors for rising prices.

But the AFR, the worst tabloid rag in Australia when it comes to reporting real estate matters, felt that a new report finding that housing affordability issues were NOT caused by negative gearing, was a “shock, horror” revelation of major magnitude.

The AFR article appeared under the headline – “The real reason houses are so expensive – and it’s not negative gearing” – which wins my award as the dumbest headline of the past 12 months.

So what IS making Australian houses expensive, according to a new report from the Centre for Independent Studies ?

The centre’s chief economist and former Reserve Bank official Peter Tulip says it’s restrictive planning rules have added more than 40% to house prices in Sydney and Melbourne.

For apartments, height restrictions have lifted prices by 37% in Sydney and by 19% in Melbourne, according to Dr Tulip’s Housing Affordability and Supply Restriction report.

On the other hand, it claims, a 1% increase in the supply of housing stock reduces rents and prices by 2.5%.

Dr Tulip says: “There are arguments from the tax policy perspective that negative gearing and the so-called capital gains discount should be considered, but it’s not relevant to the question of housing affordability.”

He says: “The effect of those tax issues on housing prices is tiny when you compare that with the 40% effect of zoning restrictions. So it’s irrelevant relative to the big issue that is currently on the agenda.”

Dr Tulip says increasing supply by lifting planning restrictions has been proven to spark huge increases in construction and reductions in housing costs.

He says that we need to relax zoning restrictions to allow more housing.

“As a society,” he says, “we need to be more accepting of higher density and less opposed to new development. We need to put more weight on the interests of renters and future home buyers and less weight on the interests of nearby residents.”

Meaningful planning reform at state and council level is crucial to fast-tracking supply, Dr Tulip says, even if it means state governments overriding councils when necessary.

While I believe that the reasons we have such expensive housing in Australia are more complex than suggested by Dr Tulip, the report does correctly point the finger of blame largely at politicians and bureaucrats for policies which restrict supply and make dwellings more expensive.


Subscribe to our newsletter today and receive a FREE copy of How To Identify Hotspots