Saturday, September 13, 2008

A Sensible Housing Crisis Proposal

For a change, someone is proposing a pretty sensible initiative in the housing market. The Australian Federal government will give tax breaks worth $8,000 per apartment per year for a decade to developers who build rental apartments and rent them for 20% below the market rent to qualifying low income people. This is a sensible move to alleviate the housing shortage in Australia, because it increases the supply of housing rather than increasing demand. Most schemes, like the proposed housing savings accounts, just given people more money to bid for the existing housing stock, which solves nothing. But unfortunately this new scheme does make things more complex and increases transaction costs. So it's not perfect by a long stretch.

Clearly, the Australian tax and maybe regulation system works against developers constructing rental accommodation or institutions and wealthy individuals managing apartment complexes. There are essentially no unfurnished rental apartment complexes in Australia. We have a rental market but it is almost entirely single houses and single apartments (condos in American). Institutions do own property, but it is mostly commercial, retail, and industrial. None is regular residential. (Senior housing does seem viable). One reason is that the effective rate of state land tax increases as you own more property - it's progressive (owner occupiers and agriculture don't pay land tax). I haven't uncovered all the other reasons, but the tax review makes clear that property taxes are relatively high in Australia. Ideally, the tax review will remove some of the distortions in the tax system that discriminate against institutional ownership of rental property. That would help significantly.

P.S. The Australian "housing crisis" is an issue of way high house prices and a very tight rental market. Basically a shortage of housing. At least where anyone wants to live. It's ironic that Australia has the second lowest population density of any country with more than 1 million population. Mongolia has the lowest density.

1 comment:

Andrew Stevens said...

That's what happens when 40% of your country is sand dunes. Same thing with Mongolia, of course, which has almost no arable land and is mostly steppes. By the by, I think Namibia (also mostly desert) is slightly less densely populated than Australia and has 2 million people.