High house prices in Australia are caused by…

By Andrew Mackinnon

High house prices in Australia are caused by:

> bank lending to property investors for investment properties, which should be banned. This includes bank lending to property investors who are also using their superannuation in order to fund part of the purchase price of their investment properties. The very definition of investment entails purchasing an asset out of savings. No bank in Australia should be allowed to lend for the purpose of the borrower purchasing an asset for investment with the objective of making a capital gain over time, such as real estate, shares, precious metals, coins, antiques or art. Borrowing for such a purchase is not investment. It’s speculation. However, if such a purchase is financed out of existing savings, rather than borrowings, then it can correctly be called an “investment”.

Without bank lending to property investors, the overwhelming majority of property investors wouldn’t be able to afford to buy investment properties. Bank lending to property investors therefore leads to increased demand for housing from investors and an escalation in house prices.

> negative gearing, which increases demand for property by illegally allowing the tax deductibility of investment property losses against other sources of income, such as salaries and wages, even though it is not necessary to incur those losses in order to earn those other sources of income. A bedrock principle of income tax law in Australia has always been that deductions against income must be expenses that were necessarily incurred in order to earn that income. The deductibility of investment property losses against other sources of income violates this principle and should be banned.

Without negative gearing, the overwhelming majority of property investors wouldn’t be able to afford to meet the repayments required by the mortgages they took out to purchase their investment properties and therefore wouldn’t be able to purchase these properties. Negative gearing therefore leads to increased demand for housing from investors and an escalation in house prices.

> high immigration, which increases demand for property in all forms by increasing the size of the population of Australia and therefore causes house prices to increase. Importantly, immigration provides a strong stream of tenants to create demand for rental properties so that property investors can confidently earn rental income from their properties. In the 1990s, passive income from investment properties, being income earned without working for it, was marketed in the property industry as the holy grail of income. Australia’s economy has been built around this concept of passive income ever since.

> allowing people who are not citizens of Australia to purchase and own property in Australia, which should be banned. That the Australian government hasn’t banned this shows that the Australian government doesn’t govern exclusively for citizens of Australia but for non-citizens of Australia also, of which there are more than 7.5 billion. Allowing non-citizens of Australia to purchase and own property in Australia leads to increased demand for housing and an escalation in house prices.

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