The taxation of owner-occupied housing in Australia: Affordability and distributional issues

This thesis examines the impacts of Local, State and Federal Government tax treatment of owner-occupied housing. The central concerns are impacts on the affordability of home ownership, and the formal distribution of tax liabilities. The ABS 1990 Survey of Income, Housing Costs and Amenities is employed to conduct empirical investigations into these issues. A user cost of capital approach is invoked to measure the effective annual costs of home owners, and a distinction is drawn between the user cost of marginal and existing investments in owner-occupied housing. We find that Local Government rates and State Government stamp duties have a regressive incidence. They make a marginal contribution to the effective annual costs of home owners, but a more significant contribution to the acquisition costs of home purchasers. These tax measures in conjunction with the Federal exemption of home owners' imputed net rents, ensure a vertically inequitable pattern to the distribution of home owners' effective annual costs. A novel feature of the thesis is the simulation of the effects of a revenue neutral tax reform package on tax burdens and housing costs. The tax reforms involve the replacement of rates and stamp duties by the taxation of owner-occupiers' imputed net rents, where the latter are arrived at by applying a multiplier yield to home owners' equity holdings. The multiplier yield is set at a value which ensures that additional revenues offset the revenue losses from the abolition of rates and stamp duties. The tax reform package produces a progressive re-distribution of the tax burden and reduces the variation in home owners' effective annual costs. The thesis is concluded by a consideration of the practical issues associated with implementation of the proposed tax reforms