Housing as a Home Housing as a Home

Introduction

Housing is a human right. Everyone deserves to live safely in reasonable conditions, free from exploitation. People's housing arrangements may change over time, and they should be able to embrace this flexibility, rather than being driven in fear to cling onto the first opportunity they get.

A fair system ensures security, affordability, and the flexibility to adapt to life's changes.

Up until now, Australians have been led to believe that purchasing their own home is a no-brainer move and that it's in their interests to throw all their money at this safe investment. This current approach to housing gives rise to some widespread, harmful effects in our society:

• Residents struggle to afford accommodation.
• Residents suffer exploitation in a rental market with tight availability and unpredictable, unsympathetic landlords.
• Residents are incentivised to restructure themselves in neighbourhoods based on their economic class.
• Residents are economically pressured to stay in situations of domestic abuse.
• Valuable land is underused as property developers are incentivised to ‘land bank' and hold onto vacant land as a form of asset speculation.
• Residents are discouraged from moving home and having space for potential children.
• Residents are discouraged from moving for appealing economic opportunities.
• Australian wealth is wasted on unproductive investments that fail to improve our future.
• Urban sprawl causes habitat loss; it increases transit times; it stretches infrastructure budgets; and it reduces the efficiency of our transit system.

In this report, we will explore these problems arising from the current situation; and we'll provide solutions which uniquely rethink the whole structure of housing rather than working around the edges.

We have three central goals for our recommendations:

1. Lower Barrier of Entry: Housing should be accessible to new entrants in the market.
2. Increased Mobility: People should be readily able to move home to suit new working arrangements or family changes.
3. Efficient Capital Allocation: Capital shouldn't be wasted on unproductive assets.

Before diving into the recommendations though, it's worth identifying the most fundamental levers involved in the housing equation, and contextualising how they work in modern Australia compared to other places and at other times.

Taxation & Policy Concepts

 

Capital Gains Tax

When an asset (such as a home) rises in value and is sold, governments typically tax this gain. Since it might've been held for years, then saying that it rose from $100 to $200 doesn't tell the whole story: sure it rose 100% in nominal terms, but there was inflation during this time, and so in real terms, the gain wasn't as significant. For this reason (amongst others), governments might only tax real capital gains, or may offer a discount on the tax rate.

Negative Gearing

If the costs of holding onto an asset and maintaining it exceed the revenue being collected (e.g. through rent), then the asset is said to be negatively geared. The owner might keep holding onto this asset anyway because they expect the asset price to rise and because they might be able to offset their ongoing losses against other income streams before paying tax on those other streams.

Imputed Rent

Let's say two people purchase 1 home each for $1m. The first person rents it out for $500 / week, while the second lives in it themselves. The first person (the landlord) must then pay income tax on the $500 cash they're receiving, while the second person (the owner-occupier) is not having to pay any tax on the $500/week benefit they're receiving.

Imputed rent refers to this economic benefit the owner-occupier is receiving. We might like to argue about the fairness of taxing such benefits, but in countries such as Australia where imputed rents are not taxed, it is undeniably one of the factors that fosters a bias towards home ownership.

Imputed rents are taxed in Belgium, Iceland, Luxembourg, the Netherlands, Slovenia, Spain and Switzerland. They were scrapped in the UK explicitly as a way to encourage homeownership.

Land Tax

In Australia, some governments have taxes labelled "land tax", but they differ from what was popularised by Henry George: ACT "land tax" is based on the improved value; and although Victorian and NSW "land tax" are based on the unimproved value, both states exclude the principal place of residence (amongst other scenarios), so as to incentivise home ownership.

Stamp Duty

Stamp duty is a tax (around 4% in NSW) applied when a property changes hands. This was a logical way of taxing property in colonial days, when governments had limited visibility, and the stamping of documents presented an opportunity to levy taxes and minimise tax evasion.

Price Controls

In order to ensure that poorer people, especially "essential workers" can afford a home, governments sometimes impose "rent control": rules about the maximum rent that can be charged to these tenants.

Sometimes a government might use "rent stabilisation", saying that rental rates can only be increased eg 2% per year, even if this is lower than the wider trends in the market.

Public & Social Housing

Recommendation Summary

The reasoning for these recommendations will be explored later in the report, but as an executive summary, we recommend these measures:

• Abolish stamp duty
• Introduce taxes on the unimproved value of land. States would set the rate, but it would be intended to be at least as high so as to cover the lost stamp duty. Ideally it would also replace some portion of other taxes, including income tax.
  • Tax-free threshold for low-value land (such as rural agriculture).
  • No discount for owner-occupiers.
  • Review or abolish other discounts and thresholds for land tax, especially those that allow investors to divvy up their portfolio as a way of avoiding the tax.
  • If the land taxes were especially high, then owners might need to sell in order to have enough money on hand for paying the tax. To avoid forcing such an early sale of a residence, land tax payments could be delayed (and indexed) until the eventual transfer of ownership.
• Eradicate homebuyer grants and schemes.
• Stop excluding property wealth from the means testing of government benefits.
• The capital gains discounts for owner-occupiers shall also apply to rooms or granny flats rented out on the property. Owners would still be able to claim tax-deductions for the business expense of maintaining those portions of the property.
• The capital gains tax discount for owner-occupied property shall be reduced from 100% of the nominal return to 85%.
• The capital gains tax discount for owners not occupying the home shall be reduced from 50% to 40%.
• Negative gearing shall be quarantined to the investment where the expense occurred, in the same way as was done in 1985-1987.
• A bank account, "Livret A" shall be created, available to all Australian residents. Account holders can have some options of risk/reward, with the account being used to fund city-building, including the creation of high-speed rail and public housing projects. The increased land-tax revenues in these places shall go towards subsidising the low-income housing amongst the public housing projects, as well as towards a return on investment for the Livret A clients.
• Increase public housing to 10% of housing.
• Lower net migration back to 2017 levels or lower.
• Stronger rental protections
  • Require a 12 month notice period for no grounds evictions.
  • Hold the bond in a government agency, and allow it to be transferred for new tenancy, without the tenant temporarily having to borrow enough for an extra bond.
  • Minimum standards for indoor air quality, especially against mould.
  • Punitive punishments for landlords, not just compensation payouts.
• The government shall fund and operate an open-source service for real-estate listings and history.
• The government shall fund and operate an open-source service for landlord reviews and background checks. Residents shall be made aware of the criminal background of a potential or current landlord, or more generally, anyone with keys to their residence. They shall also be able to see previous legal history relating to the landlord's real estate.
• The government shall fund and operate an open-source mobile app for potential inhabitants to assess a home in relation to issues around liveability and safety.
• The government (using data from universities and the tax office) shall publish data about future earnings and job titles based on each student's degree / TAFE course. This allows potential students to assess whether the education is worthwhile and whether they should visit Australia for their education.
• Universities must publish a distribution of their grades for each class and overall degree program, so employers and other students can see what it means for students to finish with some particular grade.

Causes of price rises

 

Housing Availability

Simple explanations for the cost of housing have typically focused on interest rates and availability. The explanation for the effect of interest rates is that as lending costs rise, landlords will pass on these costs to their tenants.

Price controls might be used in an attempt to isolate the inflation from flowing to the tenants, but then of course, landlords might come up with creative ways to circumvent the rental caps, such as charging for furniture rental.

In this bulletin from the RBA, we see that rent growth does typically follow the RBA's cash rate for lending:

The counterargument to this explanation though is that landlords might not act in unison − they might be in different financial situations, and those who try to pass on the inflation might be undercut by other landlords. We see some periods in the chart above where CPI rents diverge from the RBA cash rate.

In a scenario with low vacancy rates, then landlords are in a more similar scenario of risk/reward when raising rents − they can take the risk of increasing the rent, knowing that others are unlikely to undercut them.

This relationship between vacancy rates and the ability to pass on price rises is also seen when Paul Keating quarantined the negative gearing of investments, preventing home investors from offsetting their property expenses against the rest of their income.

The effects took hold during the period in grey, before the decision was reversed.

Although this ABC article says that no effect can be seen and says the graph is proof that real rents (rents adjusted for inflation) were not pushed up by the changes to negative gearing, the article also discloses that at the time, Sydney's vacancy rates were a staggeringly low 1%, and in Perth, it was 1.4%.

If we look at Sydney and Perth, we see that these cities had the most pronounced spikes.

So in fact, it seems reasonable to conclude that inflationary pressures on landlords will quickly flow through to renters in the presence of low vacancy rates.

The ABC article is not unique in failing to see the relationship between availability and price fluctuations − in a surprising survey by the Susan McKinnon Foundation (p133), 33% of respondents said that building more homes in their area would somehow increase house prices.

As housing costs soar, these costs end up being a better predictor of homelessness than poverty rates, unemployment, or even drug abuse:

In order to increase availability and help poorer tenants avoid homelessness, critics have sometimes complained about new developments being "luxury" apartments that will only benefit the wealthy, but the Commonwealth Productivity Commission found in 2022 that more supply in any segment of the market will cause a redistribution that will indeed benefit low-income households.

In Auckland, there was a planning reform from 2013 to 2016, removing many restrictions on medium density development. This caused a boom in construction:

This boost in Auckland construction saw real rent diverge from the rest of New Zealand, especially for the lowest 25th percentile:

More generally, a study by Saunders and Tulip (2019) estimates that a 1% increase in housing stock reduces rents and prices by 2.5%.

With such clear evidence that more homes would solve various problems including affordability, we might ask why more homes aren't being built. The thing is that there already are lots of homes being built:

In 2020, Sydney had 299 active tower cranes, making it second only to Dubai. Melbourne had 196 cranes at the time, with an Australian total of 772.

The fact that lots of dwellings are being completed doesn't mean that there's no room for improvement − higher-density housing can end up being cheaper for each home and can be more desirable for residents, but councils have been blocking such developments.

For this 10-storey Brunswick development, the state intervened to approve the project which had been rejected by the local council for obscuring the aesthetic value of one of the 14 abandoned, graffiti-covered electrical substations in the area. The project is now going to have the electrical substation sitting in the foyer:

Artist's impression of a heritage electrical substation in the foyer of a new building.

The effect of the housing shortage can be hard to see, in that it's something that's not happening − people aren't being able to move home. People are instead having to continue living in unpleasant arrangements.

Especially during COVID when remote work became more popular, we saw that there was a surge in demand for more space, as seen in this chart from the RBA:

In his book The Great Housing Hijack, Cameron Murray discusses how hundreds of thousands of people left Melbourne from 2020 to 2022, increasing housing availability by 6.7% but only causing temporary falls in rents, followed by increases of 10 percent, rising at the fastest rate in history. Murray makes the claim that this is due to equilibria in incomes vs rents, as well as spatial location vs rents: after some people left the city, the temporary price drop would have triggered other city dwellers to spread out in less cramped conditions, in subjectively better locations.

Returning to the unavailability of housing, it's worth noting that living in an appealing situation is at the foundation of Maslow's hierarchy of needs, along with having food, clothing and air to breathe. It gives a foundation for health, employment and social ability.

It's perhaps no surprise then that people are committing crimes specifically so they can get the food and shelter provided by prison.

The shortage of housing can cause problems even beyond the city itself − we mentioned before that each city is likely to have some economic advantages for particular industries. If there's a shortage of housing, then this will logically undermine the city's economic growth.

Take Silicon Valley for instance − if more people could live in the San Francisco Bay Area, then wouldn't there logically be more tech startups and more venture capital? The rise of other startup hubs like Seattle and Austin might not entirely be capturing all the ventures which would have happened, had there been more room in the Bay Area.

So the housing shortages in a city can undermine more than just the prosperity of that city − these shortages can undermine the progress of the world.

Zoning

The NSW Productivity Commission in 2023 estimated that the average new Melbourne apartment sold for $672,000 in 2022 but cost only $544,000 to supply; implying a profit of 19%. How is such a profit able to persist? Wouldn't people be clamouring to get in on the action?

The reality is that zoning rules are preventing people from developing as many apartment buildings as they'd like. In 2014, a property zoned for 13 storeys at 661 Chapel St, South Yarra in Melbourne was sold for $20 million. It was then rezoned for 31 storeys and sold later that year for $56 million.

In thinking about profits made by property developers, some parties have suggested forcing property developers to pay for various amenities around the neighbourhood. This sort of taxation could end up being problematic though − if we presuppose that property developers will always make huge profits and if we seek to tax these huge profits, then we run the risk of locking in governments to depend on this situation for their revenue, even though they're supposed to be resolving it.

One way we can collect more taxation from property developers is to make them pay for the upzoning windfalls rather than giving them out for free − in São Paolo, when owners want to build extra floors, they must pay the government for this extra zoning right.

Such a taxation change could make the zoning process less arbitrary and prone to corruption. If we could allow higher-density housing, we could improve the viability of transit projects, amongst other possibilities.

When Saudi Arabia started The Line, a goal was that residents would have "access to all daily essentials within a five-minute walk". We can think beyond cafés and green-grocers though − in midtown Manhattan, there is a holographic studio. Such a business can only operate in a place like New York because of its population density and its cultural relevance. This taps into the Ricardian Theory of Comparative Advantage − why is this one city better for some particular business, vs some other city?

The Line will have the economic advantages of being in the desert, and having an uncharacteristic layout.

Software tools being advertised on the streets of Silicon Valley, where there is sufficient density of tech workers.

When councils insist on urban sprawl, every neighbourhood ends up being roughly a clone, with the same local jobs in each one. The neighbourhood never reaches a critical mass for new artforms and collaborative innovation to spawn. Some people enjoy urban sprawl, and there will still be areas for that. We'll see later how Fusion's policy recommendations would see city growth directed away from areas that wish to remain as sleepy retirement destinations.

It's worth noting that developers don't always want higher-density zoning − Cameron Murray gives an example in Wyndham City Council where the developer Peet was being challenged by the council for not making their project dense enough (chapter 6, The Great Housing Hijack). The reason for building less than the allowed density is that only so many people want to live in that location − a phenomenon that Murray describes as the density equilibrium.

Peet's site at 830 Leakes Road, Tarneit North. Source

This idea also overlaps with the absorption rate equilibrium − how quickly can more homes go to market without crashing the price? It's this balance that motivates land banking: property developers holding onto land without actually starting their new housing project, and instead waiting to get a better price.

When people argue for looser zoning controls or when they call to build more homes, they often fail to acknowledge that there are already significant land banks − property developers already have the right to build more homes, and they're not doing so.

To ensure that land stops being squandered through land banking, you'd really need to increase the ongoing taxes on land, giving a greater urgency to project stakeholders. If the government were to get impatient and start building a large number of homes itself, this opens the possibility that private developers would cut their output by the same amount, to maintain the absorption rate they currently prefer.

So when people talk about how slashing planning controls is all we need for ensuring a boom in supply, a safer bet is that just as much housing will be built as what would've otherwise happened, but in a way that society had previously banned, perhaps for good reason! With its disdain for councils and NIMBY's, the logical conclusion of the YIMBY movement can be summarised as "community input is bad, actually".

Transaction Costs

We might like to think of a situation where a retiree owns a house and as the city grows around them, they continue living there while lamenting that the city isn't like it used to be. The obvious question then is "why is this person still living there if they say they no longer like it?"

The answer is of course that there are other incentives which have become more powerful than the incentive of choosing the place where they'd most enjoy living. We earlier introduced the idea of stamp duty − more generally, any transaction tax is obviously going to discourage the move.

In this example, the most noticeable problem is that this person feels stuck in a city they don't even enjoy, when they could be moving to the NSW Central Coast for example.

Avoca Drive, which is now receiving a $130m upgrade thanks to the Australian and NSW governments. It conveniently connects Kincumber and Copacabana to the rest of the region.

Another problem here is that the unhappy retiree is taking up a home that could've been more appealing to a larger family. When a couple is considering having another child, it has been shown that even the hassle of upsizing to a car that fits 3 car seats will reduce birth rates by 0.73 percentage points. The laws around car seats in the US are therefore attributed with a reduction of 145,000 births from 1980 to 2020 (compared to an estimated 57 children saved from car crashes in 2017).

When it comes to housing, HSBC estimates that birth rates drop 1.3% for every 10% rise in house prices. We can attribute some of this decline to the moving / transaction costs and some to the potentially unaffordable principal cost of the home. In terms of the principal cost, the retiree not moving is affecting the tight supply / demand in the city, and in turn, affecting housing prices.

The point here is not that houses are getting in the way of some sort of population maximisation − instead, the aim is to highlight the life-changing outcomes taking place due to even the most minor inconveniences.

Besides moving for lifestyle choices, we can also consider moving for work − if people are less able to move close to a new job, they will inevitably be more likely to stay in their current role, failing to reap the expected benefits of city living, like serendipity and opportunity.

A move could be even more urgent for people wishing to leave a relationship − in Australia, 30% of women have experienced physical violence since age 15. The violence in turn pushes the victims into criminality − in England and Wales, 6 out of 10 female prisoners are victims of domestic violence.

Some commentators say that there needs to be more emergency accommodation for victims, yet even these advocates would acknowledge that this is only a temporary solution. If housing wasn't so slow to obtain and wasn't prohibitively expensive, then perhaps the couple would've already parted ways before becoming an emergency. Or similarly, perhaps the affordable housing would've eased relationship tensions and kept the couple together.

Finally, let's consider those moving to start a new relationship. In The Invention of Good and Evil, author Hanno Sauer explains that human evolution favours those who will be more domesticated and sociable within their society. Such a theory explains the whites around our irises, so observers can see what we're looking at. We've gradually been able to evolve away from small and violent societies by the fact that we continue to grow our cultures and because our reproduction favours society.

If Fusion can reduce transaction barriers in our distribution of housing, then people will be able to redistribute themselves into new cultural pockets where they better fit in, and in turn, we'll be able to run multiple evolutionary branches, accelerating the creation of progressively more-civilised societies in the future.

Favourable Taxation

The biggest tax event for homes happens when they change hands − here the seller is hoping to realise a capital gain, which we defined earlier. Around the world, it's common for owners to pay less in capital gains tax if they happened to live in the home they're selling, or if they held the home for a long time. In Australia, owner-occupiers don't pay any capital gains tax at all.

We mentioned earlier that a factor for lenient taxation of capital gains is the fact that it's happening in the context of inflation. Other factors are the depreciation of the physical home and its associated maintenance costs − in Switzerland, value-preserving maintenance is tax-deductible, whereas in Australia, repairs for your primary residence are not tax-deductible.

In considering how capital gains tax fits with ideas of fairness, let's think back to the earlier scenario of the retiree continuing in a city they've grown to resent. Besides the transaction costs discouraging them from moving, they're also motivated to stay by the fact that they stand to realise even higher capital gains, the longer they hold out. Remember, owner-occupiers pay zero capital gains tax in Australia.

We can extend this thought experiment and consider someone new moving to the city, knowing they won't especially like it, but moving there because that's where they'll get the best capital gains. Remember, the capital gains tax is 0% for owner occupiers, vs 50% of their income-tax rate if they don't live in the home. This tax treatment incentivises residents to throw as much as possible at the purchase of their primary residence, thereby organising themselves into rich and poor neighbourhoods.

We might even like to ponder whether anyone actually enjoys living in the rich neighbourhoods − are they all just pretending they like it, as a way of preserving their house prices? Domain's ranking of liveable suburbs doesn't strictly correspond to house prices.

For people in all these examples to make significant profits out of getting in the way and living in a place they don't even want to be, it's so clearly, so obviously, a broken system. Some might disagree and say that maybe the retiree deserves their windfall because the city changed in a way they didn't like. Let's consider the opposite then − what if everybody leaves the city and prices fall? Should those left behind lose all the money they spent purchasing their homes?

The fact is that Australians have come to expect housing to double up as a home and as a safe investment. If you're ever wanting a high reward, low risk investment though, then whether it's housing or natural gas exploration, this investment is inevitably going to involve offloading the downsides and risks as externalities for someone else to deal with.

The offloading of risks can only go on for so long. In California, insurers are increasingly leaving due to the increasing wildfires and hurricanes. Those who wish for house prices to remain high in Australia will have to grapple with the fact that if all their money is tied up in an asset that can no longer be insured, this asset is going underwater faster than Tuvalu.

Post Fire in Los Angeles Country

On this idea of prices around the world, let's look at the trends for housing prices and explore how each country's taxation can explain it:

Real housing prices since 1990. Source: RBA

Household Debt (as a percentage of household disposable income). Source: RBA

The limited growth of housing prices in Germany and Switzerland can help explain their outlier status on this chart of 2023 home ownership in Europe:

In this map, we can see that the wealth of a country doesn't necessarily mean that more people own a home. In fact, once a country is wealthy, people can invest in other things and they can provide strong protections to renters.

In Germany, you can get out of capital gains taxes if you lived in the home for 3 years or if you owned it for 10 years. Otherwise, you're taxed on the nominal gains at the same rate as your income tax. For comparison, Australian residents similarly get out of capital gains taxes if they lived in the home, then for other homes, they're taxed at the same rate as their other income, but if they held onto this home for at least 1 year, they get a 50% discount on this capital gains tax.

This 10-year tax-free treatment for landlords ends up incentivising long-term landlords rather than price speculators.

Transaction fees also discourage short-term gains: there are property transfer taxes (equivalent to Australian stamp duty) of ~5%, as well as fees to the real-estate agent up to 8%, plus VAT at 19%, split between buyer and seller.

With investors avoiding the housing market, it's perhaps no surprise that in 2022, German R&D investment was 3.1% of its GDP,  compared to the OECD average of 2.8% and Australia's 1.7%.

Vacancy rates for German housing have been declining to 2.5%:

Berlin in 2021 by Kasa Fue

Switzerland is another outlier on these charts. It's one of the few countries where imputed rent is taxed. It has 1-3% stamp duty (depending on the canton) and capital gains tax, but residents can get out of capital gains tax for a replacement purchase (if you live in the home for the rest of your life). Even if sellers aren't exempt, the tax gets lower depending on how long you live there.

Renovations and upkeep spending is tax-deductible if it's only value-preserving or if it's energy-saving.

Swiss R&D spending is 3.3% of GDP.

Zurich in 2007 by MadGeographer.

At the other end of the spectrum is the Netherlands, which has a remarkably similar resemblance to Australia on the earlier charts, only offset by ~15 years. In the 1980s, the government decided to explicitly promote homeownership, and at one point the country had the fastest rise in mortgage debt in the OECD.

One of the tax incentives is that mortgage payments are tax-deductible in the Netherlands (for any home you own). Since this tax deduction was applied at the owner's income-tax rate, this was skewed towards benefitting high income earners, but in 2001, it started being phased to 38% for everyone. The deductibility was also revised so that it only applies to your primary residence, and the deductibility only applies for the first 30 years of the loan.

From 2013 to 2018, the maximum loan-to-value ratio was trimmed from 105% (including 2% stamp duty) to only 100%. In Australia, the Commonwealth Bank sets a maximum of 95%.

Capital gains on homes are not taxed in the Netherlands, but the growth of house prices would be dampened by the fact that imputed rents are taxed.

The tax changes starting in 2001 have caused mortgage growth to slow − in 2004, we see that the total amount loaned was growing around 10% year, but is now down to 2%. This tendency to spend on mortgages perhaps explains the low R&D spending in the Netherlands (2.3% of GDP).

Source: De Nederlandsche Bank (DNB)

Notice that the decline in borrowing coincides with the 2007-2008 global financial crisis. If we look at a longer timeline than before, we also see that the continued slowdown of mortgage spending in the Netherlands correlates to a substantial fall in house prices:

Source

The rental market in the Netherlands sees similar shortages to Australia, with vacancy rates hovering between 1.2% and 3.3%. The migration to the Netherlands was only 1.9 migrant / 1,000 population in 2021, around 1/5th that of Australia.

In discussing the rental market, it's also worth noting that only 8% of rental homes are on the "free market", where rent increases can only occur once per year. The other 92% is rent-controlled. Housing associations are required to let 92.5% of their vacant social houses to households with incomes up to €44,035. In addition to the rent controls, the government also provides rent subsidies.

The Dutch government has tried to address the housing shortage by releasing €1b from 2020-2021, but since the grant projects had to be built within 3 years, municipalities typically chose projects that were already mostly prepared.

Amsterdam in the 1980s

The last taxation treatment worth mentioning is how ownership of rental property skews towards natural people. The ability to offset your property expenses against the rest of your income means that for someone paying an income tax rate of 40%, this tax break is more significant than for a company, who would only be paying a tax rate of 25% in Australia.

Tenant Protections

In Australia, 31% of households are renting, and rent as a share of gross household income has remained steady around 20.2%:

Source

In his book The Great Housing Hijack, Cameron Murray explains that there is an equilibrium between income and rent, explaining the calmness of the rental fluctuations.

We saw that Germany had a high proportion of renters and had stable housing prices. The effect for rents is similarly stable:

The fact that Germany has seen declining real rent prices since 2021 might seem paradoxical, given the earlier chart where we saw a continued decline in availability for rental housing in Germany. The explanation for this paradox is that Germany has widespread rent control, including a 5-year price freeze for Berlin, starting in 2020.

On average, 214 people were answering each rental advert in January 2021, almost double the earlier year. It's anecdotally more common to see bribes ("finder's fees") for securing a lease in Berlin, as well as overpriced furniture rental imposed on tenants, but both of these can be clawed back through the courts.

It's anecdotally harder finding an apartment than finding a job in Germany.

With rental vacancies still being low and therefore prone to increasing rents, Germany is therefore extending the brakes on rents for another 5 years.

Sweden similarly has rent control (starting since WW2), as well as state-run queues for accommodation contracts. Once someone receives a contract, they keep this "first-hand" accommodation for life.

The queue in Stockholm is unfortunately 9 years long, fuelling a black market of "second-hand" leases where the rent is anecdotally double the original price.

Stockholm in 2007 by JZ.

This BBC report about the Swedish situation sums it up succinctly:

"A new market model needs to price rent more accurately," says Dennis Wedin, a housing spokesperson for the Moderate party, which is in opposition nationally but leads Stockholm city council. "A result would be slightly higher rents in the city but lower in the suburbs."

The Social Democrats, who lead the country's centre-left national coalition, recently mulled reforms allowing market rents for newbuilds - but backtracked in June after the idea temporarily brought down the government.

Artificially lowering prices on any good (not just housing) via price control has the effect of increasing demand for that good and reducing its supply. Long-term impacts of price control include shortages, rationing, illegal markets, and deteriorating quality.

Rather than controlling prices, an alternative is for governments to provide subsidies to their preferred class of renters. But in this situation, landlords can be reluctant to rent to such people, for fear that they'll lose their government assistance for some reason and be unable to continue paying rent.

In choosing their favourite class of renters, governments might select people by their occupation, but it's not ideal for someone to be permanently locked into their job choice if they wish to continue living in the same place.

Such decisions can also be criticised for undermining our horizontal equity and distorting our tax system (discouraging home ownership for this particular class). 

Tenant protections needn't just focus on cost − the constant threat of eviction creates so much stress that renting has been found to be as detrimental as smoking, when it comes to biological ageing.

A parliamentary investigation took place in 2023, titled The Worsening Rental Crisis in Australia. The submissions there offer a wide range of suggestions about what the crisis is and how to resolve it. The submission from independent MP Kylea Tink involved deferring to 200 North-Sydney residents and although it declared that "there is no silver bullet", it did suggest that the solution starts with leadership and public dialogue.

In the submission by the National Association of Renters' Organisations, they pointed out that any tenant protections really rely on better protections against no-fault evictions, because otherwise it's too easy for landlords to retaliate.

The current paradigm relies on renters to enforce the law themselves through bodies such as the Victorian Civil and Administrative Tribunal (VCAT), who typically take months. Like any other court process, customers find the process time-consuming, intimidating and incomprehensible. If landlords are found guilty of failing to meet their duties, then there are no fines or prison sentences − the only possible consequence is financial compensation for the losses suffered.

When Bradley Heafey died in a house fire in NSW in 2019, the landlord was ordered to pay $250,000 in compensation for being negligent with the smoke alarms.

Source

In 2022, Simon Scarff died in a house fire in his rental home, which still didn't have a fire alarm, despite Victoria passing a law in March 2021. This law only applied to new tenancy agreements.

A home that you literally can't live in is obviously insufficient for citizens.

As society advances and various comforts become commonplace in owner-occupied houses, we believe it makes sense to mandate them in rental housing too: things like running water; energy efficiency standards; and clean air.

Research by Rebecca Bentley et al shows that removing mould from all housing across Australia would save around 109,000 health-adjusted life years across our population. It would also reduce healthcare costs by $2.82 billion over 20 years and improve household income by $4.21 billion thanks to improved productivity.

Immigration

As of June 2023, Australia's net immigration was around 500,000 people per year:

If we consider the effect over time, 31% of Australia's current (2024) residents were born overseas, compared to eg 29% for New Zealand, 21% for Canada, 18% for Germany and 15% for the USA.

Our immigration per capita in 2023 puts us 15th in the world, between Cyprus and Saudi Arabia.

It was mentioned earlier that the unavailability of housing is causing Australians to have fewer children − it's a bizarre situation when we don't get to use all the schools and childhood services we've created. We are having fewer Australian children and instead importing more foreigners who must later learn our way of life.

Critics of our immigration policies have highlighted that 20% of "skilled migrants" don't pay any income tax, 7% of "skilled migrants" are actually on unemployment benefits, and that when immigrants are applying for jobs, they are often not actually qualified or suitable. These figures coincide with a decline in private-sector jobs.

In his speech Flat Out Like a Nation Sinking, Matt Barrie doubles down on the idea of current immigration policies working against us, and even explains a compelling case for how immigration targets are being cunningly used to alter the demographics of electoral seats and rig elections towards Labor.

The immigration debate is unfortunately a topic that can rarely be raised in Australia without someone being labelled racist. In 2024, Malcolm Turnbull made the point "it isn't racism or intolerance if we say we will decide who comes into our country. It's no more racist or intolerant than having a lock on your front door and deciding who can come into your house.

Matt Barrie suggests that the immigration debate is being deliberately shut down because so many entities are benefiting from it − home owners, universities, banks, and real-estate agents, to name a few. Thanks in part to all the home loans it issues, the Commonwealth Bank sometimes has a market cap exceeding Goldman Sachs.

As Cameron Murray notes (The Great Housing Hijack, chapter 8), any policy change that negatively affects home prices will hit the households with the highest income and the most political influence, all for perhaps minor benefits − typically these policies would see some "politically unimportant" people being able to buy a first home a few years earlier.

Although immigration can deplete housing availability, it's worth noting that some migrants might join the construction industry, so it could theoretically become net positive for housing. There's also the fact that immigrants might resolve shortages in other areas − the Core Skills Occupation List is regularly updated so that Australia can resolve its shortage of psychologists and software engineers for instance, which might actually be more pressing than the shortage of housing.

It's these sorts of benefits from immigration that have led to Fusion calling for merely a return to normal immigration, not a complete end to it.

Public Housing

When people are reliant on the free market for housing, an assumption is that everyone will be capable of earning enough to pay for a basic life, yet as noted by Michael Haines for Basic Income Australia, 12-14% of our population cannot do paid work, so they're consigned to poverty. Welfare payments in Australia are always set below the poverty line to force those who can work to take the available jobs.

Around the world, public housing emerged because poor people were living in squalor. It wasn't just sympathy for the residents − others were upset that these living conditions were spreading sickness and immorality.

Rather than providing housing themselves, some governments prefer to subsidise the rents for poor residents, but if governments are going to write blank cheques to facilitate these residents, then it runs the risk of landlords setting unrealistic prices and milking the government.

Non-profit organisations might seem to be a good solution here, but in books such as The Great Housing Hijack and Dead Aid, the authors criticise these organisations for avoiding any long-term fixes, and perpetuating suffering as a means of preserving their own existence.

Having governments involved in owning and operating public housing means that future governments can easily kill off the program if it starts losing favour.

It was noted earlier that Singapore's government is heavily involved in the housing sector − this allows them to more easily intervene in housing poor people. In a podcast, Professor Chua Beng Huat was asked if there's a homeless population in Singapore and his answer was essentially "No. Homelessness is not a problem because the government gives them homes at very low cost."

Source: OECD Affordable Housing Database

The OECD estimates that Australia's community and public housing makes up 3.2% of our housing stock. The Australian Housing and Urban Research Institute (AHURI) notes that in June 2021, there were a significant number of people on the waiting list for social housing, so 6% of households are either living in, or have requested to live in, social housing.

The low prevalence of public housing means it skews towards the poorest Australians, which in turn undermines its political favourability. In a candidate forum for the council elections in Brunswick West, independent candidate Romeo Delorenzis characterised public housing as "ghettos" that needed to be dispersed so that other residents would stop treating them as a lower class of citizen.

The disdain for public and community housing must inevitably be partly attributed to the enormous market forces benefitting from home ownership − if Australia was to see a 13% increase in social housing (catching up to the UK), then how would that impact the $1.5b spent on real-estate advertising (one third of all advertising revenue)?

Where all these market forces coalesce is the TV show The Block − it's saturated with product placement and speculation about real-estate prices. It doesn't seem to be common knowledge that Fairfax media (owner of Channel 9) has a 60% stake in the Domain Group, currently trading at $1.5b. With this influence over TV and print, it's no wonder there's still an idea floating around that there's such a thing as "the Australian Dream" which amounts to little more than owning a house.

The Block

Thinking back to the stigma placed on public housing and its residents, compare it to Defence Housing Australia, a public housing developer that provides housing to defence personnel without tight means-testing or stigma. Some of their projects even win architecture awards.

In The Great Housing Hijack, Cameron Murray discusses how universal public healthcare really won support after soldiers returning from World War II had high expectations of social support. The desire for public hospitals caught on amongst the middle class and eventually Medicare was started.

Considering the rates of people unable to work, and the precedent set by France and the UK, it's Fusion's position that Australia should aim for public housing being at least 10% of housing.

The provision of public housing would tie in with our recommendation to implement Universal Basic Income − in deciding what counts as a "basic" income, it should necessarily be enough to pay for renting a public home.

Tax Recommendations

We earlier covered the benefits of being able to move quickly rather than being locked into owner-occupancy, so it's Fusion's opinion that renting should be made more appealing. But we don't recommend achieving this through problematic price controls.

We've seen that there are favourable tax treatments given to owner-occupancy, and the generous treatment of capital gains is hard to justify, considering how much the asset owner actually contributed to the profit.

The treatment of houses becomes even harder to justify when it comes to the receipt of government benefits − means-testing for aged care will not include the full value of your home, instead saying it only counts as a maximum of $206,039.20.

If this person had been buying gold throughout their life, they'd be told to sell the gold to pay for their living expenses. But If they had been paying off a mortgage, then even if their house rose 200% in value, they wouldn't be told that they should sell this asset to pay for decades of living expenses.

So houses are sometimes an asset, and sometimes not an asset.

When governments are in a situation where they're giving money to objectively wealthy retirees for decades, it's no wonder that the government doesn't try to prolong the lifespan of its citizens by eg classifying ageing as a disease. Such a policy would unlock research funding for the core workings of our physiology and allow an increased healthspan.

Fusion recommends moving away from the favourable tax treatments for home ownership, and moving towards land taxes as promoted by Henry George. We agree with Ken Henry's review that land tax should at least be high enough to replace stamp duty, and we believe it should also end up replacing at least 1% of income tax revenue.

Stamp duty (or any transaction taxes) have an effect of reducing the number of transactions and hence reducing market volatility, which can be seen as a good thing, but Fusion does not believe that this makes up for its downsides.

Although the lack of taxes for imputed rent in Australia results in a bias towards owner-occupancy, we don't believe that these taxes should be introduced, mainly due to the fact that taxing something theoretical is inherently problematic.

In the 2009-10 report Australia's Future Tax System by Ken Henry et al, it was highlighted that there are noticeably different tax treatments for different asset classes, with investments in superannuation sometimes attracting negative effective tax rates.

When the report mentioned the lack of consistency across different asset classes, it's worth noting that the perfect storm is the growing trend of self-managed super funds investing in property.

To help iron out the differences across asset classes, the report (on page 33) recommended a 40% discount on taxable income from bank deposits, bonds, rental properties, and capital gains. It was noted that people pursuing capital gains in real estate were distorting the market, but that leaving owner-occupier capital gains untaxed should remain because "these provisions are of very long standing and have deep community support".

We believe that since the report's publication in 2010, the community has become more open to the idea that generous tax treatments for home ownership are not actually a good thing in the long term. It's also worth noting that Fusion isn't inclined to adopt a policy merely because it's popular: Fusion's mission is "to collaborate widely throughout society, to deeply explore underlying issues, and to build consensus for long-term solutions."

We believe that capital gains taxes should be made more even across owner-occupiers vs landlord investors and that they should be less generous for both. For owner-occupiers, the tax discount would be revised from 100% to 85%, and for others, we recommend lowering the discount from 50% to 40%.

These tax changes (especially those affecting capital gains) could be incrementally phased in over 30 years, like what was done in the Netherlands.

Since the capital gains tax is merely meant to cancel out the inflation during the period, a feasible alternative could also be to replace the 50% discount with a 0% discount on the gains indexed for inflation.

Canada has recently moved to change its capital gains taxes and was similarly motivated by housing affordability. For larger gains, the inclusion rate changes from ½ to ⅔, with some exceptions. Canada's decision to motivate entrepreneurship also has similarities with our proposals, which shall be seen later.

Returning to the idea of land tax, it is recommended that states abolish the land-tax exemptions they grant to owner-occupiers. There could still be discounts for farming, but this would come in the form of a tax-free threshold for low-value land (assessed on a per-m² basis, not the aggregate size). This recommendation is consistent with the Henry Review (page 48).

In reducing the favourable tax treatment for owner-occupancy, we also recommend immediately abolishing any homebuyer grants and schemes, including Labor's recent Help to Buy scheme.

Already, politicians are criticised for having a conflict of interest when it comes to housing − they're meant to be making housing more affordable, but many of them own multiple homes that they treat as investments. By giving the government some equity in people's homes, suddenly the treasury would also be joining in this conflict of interest, seeking to maintain the value of its equity in all these homes.

But even if there wasn't a conflict of interest, for both this scheme and for the Liberal Party's suggestion of letting people use their super to buy a home, the fact is that introducing extra spending power in a constrained market will inevitably cause prices to rise even higher, creating further disadvantage for future generations.

In The Great Housing Hijack, Cameron Murray's view is that any tax changes might change the asset price but will not change the cost of housing borne by owner-occupiers, seeming as that's in an equilibrium with purchasing power. We acknowledge that such an equilibrium should exist, but even if it's perfect and even if these tax changes result in owner-occupiers paying just as much as their current mortgages, then sending all this money to banks isn't as beneficial as if these funds had been collected in tax revenue. This money could've been invested back into the community where this home exists.

If tenant protections were strengthened and if the tax benefits were evened out across renting vs owning, then really the last remaining benefit of owning would be the greater freedom in making architectural and décor decisions.

On this note, it's also worth mentioning that with a 15% tax on capital gains, renovations would be harder to justify if they're not going to be valued by subsequent buyers. We saw in Switzerland that renovations are tax-free when they're for energy efficiency or for merely maintaining the home.

If builders are less busy with unnecessary renovations, then this will help to lower the cost of building extra homes.

As a measure for immediate impact, we recommend relaxing the tax treatment for rent collected from the owner's primary residence − many spare rooms are sitting vacant because if the owner rents out a room in the same home they're living in, then that portion of the home no longer qualifies for the owner-occupier capital gains tax discount. We recommend that this portion of the property should still qualify for the owner-occupancy treatment.

This policy would unlock up to 13 million unused bedrooms in Australia.

Such tenancies are currently being handled as black-market agreements, offering tenants fewer rights. We recommend that this relaxed owner-occupancy treatment would also apply to one granny flat or caravan on the property.

Our final recommendation in terms of tax treatments is that negative gearing shall be quarantined for property expenses, in the same way as was done in 1985-1987.

Tenancy Recommendations

We do not recommend banning no-grounds evictions: since these must be challenged by the renters in a stressful, imperfect tribunal, then such a ban fails to fully protect tenants. Instead, we recommend that no-grounds evictions must come with 12 months' notice.

Landlords wishing to avoid a legal fight will opt for the 12-months' notice, which would be less stressful for tenants than a sudden legal fight before an imminent eviction. There would need to be exceptions for eg the landlord wishing to move in themselves, or the landlord wishing to sell the property.

Fusion also recommends minimum standards for air quality, especially in regards to mould. Precise standards are subject to consultation and outside the scope of this report here.

We recommend introducing punitive punishments for landlords, not just compensation payouts.

Fusion also recommends some technological solutions that will impact tenancy rights.

Technology Recommendations

It was noted earlier that the real-estate industry is heavily influenced by those who wish for ever-rising prices and who have the ability to push misinformation through their media holdings.

The media is tied up with websites like realestate.com.au and domain.com.au, where it's clear to see that there is a tendency towards monopoly. It is Fusion policy that the government is the ideal provider for natural monopolies. So for this reason, Fusion advocates the funding of an open-source website for property listings and market analysis.

Such openness and collaboration would also help avoid a scenario like what happened with RealPage, where the incorrect reporting of rents ended up prompting landlords to raise the rental prices by 14.5% to keep up.

Perhaps on this same website or perhaps elsewhere, Fusion also recommends funding an open-source site for reviews and history of landlords and rental properties. The real estate industry currently maintains blacklists of renters, whereas the renters don't have anything comparable of their own, to warn others of what's ahead.

If renters' rights are infringed upon, we discussed earlier that they themselves are required to take up the matter in a tribunal. The fact that this is the only legal outlet for justice seems like a glaring oversight when we consider how easy it would be to offer a review website as well.

A third technology offering would be an open-source mobile app for potential inhabitants to assess a home's liveability and safety issues, using their phone's camera. Tenants and potential buyers could hire the services of a professional inspector, but compared to an app, these professionals are slower, less available, and less transparent.

App users might be instructed to feel outside the bathroom for potentially damp floors; they might be instructed to test the fire alarm; and they might be alerted that a door knob is going to hit a pane of glass. It's easy to miss defects during an inspection, and the risks involved would play a part in discouraging people from ever moving.

A final technology recommendation is to fund an open-source website that provides transparency about Australian tertiary education. Our immigration skews heavily towards student visas, and there is growing suspicion that these migrants don't end up working in roles corresponding to their studies.

This outcome is not in the interests of Australia or the students themselves. In deciding whether to study mechanical engineering for instance, a potential student should be able to see data about obvious questions like:

• What portion of students actually finished this course?
• What does the distribution of grades look like? Does everyone finish with a distinction average?
• What is the median salary for these graduates after 5 years?
• Where do graduates typically live after 5 years?
• What are the common job titles of graduates after 5 years?

If potential students could more easily assess their options, then it wouldn't be as hard for governments to keep this industry in line.

Sydney Conservatorium of Music

Investment Alternatives

Similar to the American concept of "accredited investors", Australia has "sophisticated investors" who are able to invest in startups and various assets that are not available to everyday people without the same income or wealth. It's our view that this is one of the factors pushing people into investing in housing − they might actually prefer to invest in something else, if it were available to them

The French government has taken a unique investment approach by offering citizens access to the Livret A. This scheme is a bit like a bond in that it's a loan to the government, but it's marketed as a bank account paying a pre-determined, tax-free interest rate (currently 3%). The scheme is capped at € 22,950 per person and sees a staggering popularity, with 82% of the French population having an account.

The funds accumulated by Livret A are used to invest in French companies, social housing, stocks and bonds.

If the government was going to be an investment partner for ordinary civilians, then it could also allow civilians to get exposure to city-building projects, similar to what the Saudi government is doing under the NEOM banner. In October, the first NEOM project was completed: a luxury island. NEOM also includes The Line, a linear city discussed earlier.

The proposed Epicom resort in Saudi Arabia − part of NEOM. Source

If states were to adopt land tax based on the unimproved value of the land (as advocated by Henry George), then a logical way of funding city-building projects would be to take a cut of the increase in land-tax revenues after the construction of the road and rail links to a new city. Currently when funding large infrastructure projects, the upside for the government would be some downstream increase in economic activity, as well as some potential goodwill from voters. This can lead to projects being approved in ways that are not entirely transparent or publicly popular.

By relying more heavily on land tax, governments could see more focused harvesting of the economic benefits from infrastructure projects, and in turn, governments could offer fair returns for investment partners.

A recommendation of Fusion is to create its own Livret A scheme, available to all Australian residents. Account holders can have some options of risk/reward, with the account being used to fund city-building, including the creation of high-speed rail, climate R&D, and public housing projects.

Similar to France's implementation, the scheme would need to be capped, especially if the returns are untaxed.

We also recommend following the lead of the United States, and offering an exam to become an accredited / sophisticated investor. Having a lot of money could have happened from inheritance or luck, and should not be the only heuristic to determine someone's suitability to access different investments.

Conclusion

In this analysis, we've seen how the unnecessary doubling up of homes as both housing and as investments is causing worse outcomes on both fronts.

By levelling out the owning vs renting tax treatments, we will free people from being locked into a suboptimal life. By changing the alignment of taxes towards land value rather than transactions, we can create a system that incentivises the growth of diverse societies, each emerging with unique identities.

By supporting new investment opportunities besides real-estate speculation, we'll allow Australians a chance to invest in our shared future − a future that includes an embrace of innovation again.

We can tie each of our recommendations to the three stated goals we set out to achieve:

1. Lowering the Barrier of Entry
   • Increasing public housing from 3.2% to 10% of the housing stock ensures more Australians have access to affordable homes.
   • Freeing up spare rooms and granny flats will provide lower-cost options for people to get housing.
   • Introducing the Livret A scheme provides alternative investment opportunities, reducing the popularity of housing as an asset class, thereby gradually reducing real home prices.
   • Gradually increasing capital gains taxes on housing will gradually decrease real home prices.
   • Increasing land taxes will gradually reduce real home prices, as more of the owner's borrowing capacity is allocated to taxes rather than mortgage payments.
   • Abolishing homebuyer grants and schemes prevents the prices from being inflated for those outside the government's favourite class.
   • By supporting the collection and distribution of real-estate market data, there will be greater visibility of housing options, easing the process of securing housing, especially for cheaper accommodation, where the owners couldn't justify high advertising fees.
   • An app for assessing a home's safety and liveability will help decrease the assessment costs for potential purchasers and renters.
   • By increasing the transparency of tertiary education, we'll better be able to see whether student visas are benefitting Australia, and we can make smarter, more democratic decisions about our immigration policies.
   • By reducing immigration, we will lower the competition for housing and increase the availability for existing Australian residents.
   • By reducing the competition for existing homes, we'll lower the barrier for children being born in Australia and getting access to Australian housing.
2. Increasing Mobility
   • Replacing stamp duty with land tax removes financial penalties for moving.
   • Stronger tenant protections, such as 12-month notice periods for no-grounds evictions and transferable bonds, make renting more secure and flexible.
   • Freeing up spare rooms and granny flats will provide an extra 13 million bedrooms. If these rooms remain less popular than renting a whole house or apartment, then the ongoing availability provides options for people wanting to move at short notice.
   • By supporting the collection and distribution of real-estate market data, people are able to see more opportunities for where they might live.
   • By publishing data about landlords (including history and reviews), we will help resolve hesitation about moving to a situation that might not actually be liveable.
   • By issuing punitive punishments for non-compliant landlords, we will push them out of the market and resolve renters' hesitation about moving.
   • An app for assessing a home's safety and liveability will help resolve hesitation about moving.
   • By enforcing minimum standards for air quality, it will give renters a breath of relief about moving.
   • By reducing favourable tax treatments for owner-occupiers, we will encourage the popularity of renting, which will in turn strengthen the political power of renters, further increasing the mobility of housing in a virtuous cycle.
   • Increasing public housing from 3.2% to 10% will give more options to move to different social housing.
3. Efficient Capital Allocation
   • By increasing capital-gains taxes for home ownership, capital will be directed to potentially more productive investments.
   • Introducing the Livret A will give retail investors access to investment opportunities previously available only to nation states or large institutions. This will unlock funding for projects that might not have otherwise got off the ground.
   • Allowing an exam to become an accredited investor will allow new options to investors, besides real estate.
   • By increasing land taxes, we will align government revenue more strongly to the land values in their domain, which is a reasonable heuristic for the area's liveability. Government investments will therefore be more targeted at raising revenue through increased liveability.
   • By increasing land taxes, we will discourage land banking and unoccupied housing.
   • By increasing the mobility of workers, cities will be better able to organise around promising industries, doubling down on their economic advantages.
   • By increasing the transparency around tertiary education, we will help people make smarter decisions about their future and prevent them squandering their valuable time and money on unproductive investments in themselves.

These recommendations will ensure that housing is transformed from a tool of exploitation to a centrepiece of a thriving, dynamic society.