With the housing bubble accelerating each day, sometimes you wonder if it is ever going to pop.

Tim Colebatch has written a number of key articles of recent, including this one on negative gearing pointing out that investors now account for 40% of all loans for established homes, rather than just 8% 20 years ago.

The twin attractors are negative gearing and low capital gains taxes.

This resulted in the HIA press release Tax Policy by Leaks:

“There is a mistaken dogma that allowing taxpayers to claim interest expenses on borrowings is a tax rort. Such muddled thinking led to the disastrous flirtation with the quarantining of negative gearing on rental investment property in 1985.” says HIA Chief Executive Graham Wolfe.

But as Ross Gittens pointed out in this oft quoted article re Keating’s ‘quarantining’:

But, so we’re asked to believe, this caused investment in rental accommodation to dry up. Vacancy rates fell very low and rents shot up. …

However, Saul Eslake, ANZ’s chief economist, has gone back to check this story and can’t find it.

His examination of the Real Estate Institute of Australia (REIA) figures for the capital cities shows that rents rose sharply only in Sydney and Perth (and the Bureau of Statistics’ figures for dwelling rent don’t show a marked increase for any capital).

Another report is quoted in that article, well worth a read.

In response to the Fairfax piece Land Bankers Put Squeeze on Property Buyers, the HIA pushed out another diversionary press release warning of housing shortage to reach 500,000 by 2020. What are the real supply side issues?

Abolishing incentives like negative gearing, cap gains and the First Home Owners Grant reminds us how far tax policy has slipped from it’s objective of raising taxes equitably and with the least impediments.

We must re-introduce a Federal Land Tax that is higher and flatter. This can fund the abolition of GST, stamp duty, payroll tax and – tell your friends – cut income tax by at least half. Sign the petition NOW!

All we need is access to land. When land is drip fed at 2 or 3 properties per month per development, rather than sold in one batch of 400 as they used to in the 50’s/ 60’s, buyers are held to ransom.

Land appreciates, housing depreciates. Let the tax system reflect this.