Saturday’s Age article on Melbourne’s rental growth outstripping all other states is reflective of current government policy at all levels – local, State and Federal. When combined with record immigration levels, property flipping will continue unabated.

Prosper Australia spokesman Karl Fitzgerald was quoted in another Age article on Home Buyers Lose out in Tax Change. We would have preferred a longer commentary covering the topic from this perspective:

The fillip to demand prevalent in Swan’s housing budget of $2.3bn will more than compensate for the comparatively small tightening on GST that the property lobby faces. The half a billion earmarked for infrastructure under the Housing Affordability Fund will result in higher land prices that alone will dwarf the closing of this GST loophole. The lack of supply side policies is the real criticism of this budget. Swan has failed economics 101 with the First Home Savers Accounts, creating additional buying capacity for first home owners with the $1.178 billion proposed. This capacity will be capitalised into higher land prices.

The property lobby should be chuffed with the handouts they have already received. A courageous Swan could address affordability by creating a genuine level playing field by ensuring all land is used optimally by placing a Site Rental on land.

GST is a tax that penalises and inhibits transactions and in this case development. This contrasts with Land Tax which encourages the transfer of land to those who need it.

While the capture of the estimated $620million will increase government revenue in the short term, the cost to the community, the economy and the government in the longer term will be many times that.

GST charged on the whole sale price will obviously have a greater effect on turnover, and therefore on housing affordability, than GST on the developer’s margin.

Instead of changing GST from a tax on margins into a tax on turnover, we should be changing stamp duties and development levies in the opposite direction. And the taxable “margin” should be the unearned increase in the SITE VALUE, so that the tax doesn’t deter any productive activity by the developer.

Read more detail via Gavin Putland’s excellent article: Neutralizing stamp duty and development levies