The old chestnut of negative gearing is being raised yet again. There is nothing at all wrong with allowing asset owners to claim interest payments as a tax deduction if capital gains are fully taxed. Similarly there is nothing wrong with exempting the family home from capital gains taxes if, as is the case, interest payments are not tax deductible.
High house prices are not a consequence of either policy. They are in the main a consequence of our highly urbanised society, which puts pressure on land prices around major cities, and our relatively high population growth rate reflecting high fertility and a high immigration intake. Eliminating negative gearing but retaining capital gains tax on non-owner occupied housing would reduce housing supplies and act to increase housing prices. Imposing capital gains tax on the family home implies that householders would make mortgage repayments out of after-tax income and then be subject to a futher tax on any capital gains the asset might enjoy.
Such double taxation is not imposed on the acquisition of any other asset in the economy by consumers or firms.
The key policy causing problems here is the immigration policy. Although it realizes some efficiency gains to society as a whole (only “some” because there are significant unpriced external costs) the effect of immigration is to shift the distribution of income against labour. The chances of changing this policy are however slim – the business lobby stupidly see fostering a strong housing industry as an end in itself while the “left” (with equal stupidity) see any attempt to restrict immigration as lacking compassion and of even being “racist”.
My environmental concerns mean, I guess, that I lack compassion.