The housing market has been cooling, but the changes to capital gains tax and negative gearing have given hope that housing affordability may improve. However, there is still a long way to go after 26 years of damage.
An average home would cost $595,500 now if prices were the same relative to income as before John Howard turned the market into an investor casino.
In the March quarter, average dwelling prices across the nation increased 2.1% - well ahead of the 0.8% increase in average household disposable income. The annual increase of 10.3% is again well ahead of the growth on incomes. But that is just the national average - in Western Australia dwelling prices rose 25% in the past year. The price booms over the past three years have not been a Sydney-centric issue as was the case in the 2010s.
Brisbane, Perth, and Adelaide have experienced the biggest surge in prices. Perth has joined Sydney, Canberra, and Brisbane with a median house price above $1m, and Adelaide is not far behind. The despair is that this is merely a continuation of more than a quarter of a century of prices going up and affordability going down. The change to end the 50% capital gain tax discount and negative gearing except for new builds has cut the housing affordability Gordian knot.
The capital gains tax discount distorted the housing market in favour of investors, and so governments in effect tried to lessen the distortion, by adding more of them. For more than 25 years we had a mixture of John Howard saying there was no problem, and other prime ministers and ministers avoiding the cause.
By finally getting rid of the 50% capital gains tax discount the government has given people hope that there is a chance of ending the horror of runaway house prices. The changes to capital gains tax and negative gearing are just one small, vital step on the long road to repair. Australia’s housing market is cooling - but a Sydney flat with a broken shower still costs nearly $1m.
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