Aussies are about to discover house prices are not about tax

The world’s most guiltless Treasurer is going to do something.

Australia’s upcoming budget will take aim at soaring home prices and seek to make it easier for people to gain a foothold in the housing market, Treasurer Jim Chalmers said.

“The housing market is one of the defining anxieties that people have about our economy and about our society,” Chalmers said in an interview in Canberra Sunday, two days before he unveils his fifth annual budget. “It’s very clear to me now – increasingly clear – that the status quo in housing and in the tax system is unfair and unacceptable.”

The government is mulling changes to long-debated tax concessions — including negative gearing and capital gains tax — which have been widely viewed as favoring property investors, according to recent press reports. The backdrop is a deepening housing crisis in Australia, where soaring home prices and a dearth of supply have locked many younger buyers out of the market.

The current downturn in the market is likely to last for quite a while thanks to the energy shock and the RBA.

That’s all good.

But in one way it is bad. Chicken Chalmer’s tax changes are likely to take some credit too. And that will be undeserved.

The negative gearing and capital gains giveaways of yesteryear played some role in lifting house prices around the Millennium.

But those effects have long since been replaced by two other factors. The first is easy credit, supported by government fiat.

The second is mass immigration. John Howard snuck it into Australian policy, and successive governments have built upon it ever since as the sole driver of economic growth.

It will continue to create an ever-larger shortage of housing, as construction not only fails to keep up but also falls further behind as the new energy shock drives up building costs.

These developments will leave housing construction targets eating dust:

The imbalance equals structural pressure on both rents and capital values upwards.

While the energy shock lasts, prices will fall, but the moment the RBA cuts rates sometime later this year as the economy crashes, it will be off to the races again for house prices, tax changes be damned.

If you want cheaper houses, Australia must reduce immigration to an effective zero.

It’s working in Cananda!

Yeh, nah.