Why are houses prices unaffordable?

I have an alternative theory why housing is so unaffordable. One is Keynsian economic theory, demand exceeds supply, prices rise. If demand is high and supply is low, prices will rise and the converse applies. Victoria has had a rising population which has added to the demand side of the equation.

Monetary economics applies as well. If interest rates drop, as they have or did for quite a while, prices rise. Interest rates have been on the rise for a number of consecutive quarters but we have still seen prices rising. This is an anomaly, so there must be another factor.

There is a third factor. And that is the government's role in the property sector. Taxation.

1. State stamp duty
   
2. Commonwealth Capital Gains Tax
   
3. GST

Each of these taxes are either an ingoing tax or exit tax, and each will make a significant impact on peoples decision to buy, sell or hold.
The first, being stamp duty, is the most insinuous tax. The second affects only investors. The third impacts the new building sector the greatest.

Stamp duty, historically, taxed mums and dads on the purchase of a home at a rate of 2%. That now is effectively 5%, through the effects of inflation on the marginal threshold when the stamp duty rate rose to 6%. Governments have conveniently forgotten to raise the marginal threshold. The current threshold in Victoria is around $115,000. After that the tax impost of stamp duty raises itself to 6%. That 6% margin used to only tax the very well to do who lived in Toorak or the better end of Brighton. Not any more. Your ordinary mum and dad gets slugged the
Toorak rate in Caroline Springs or Narre Warren. That's the people's representatives representing you which has brought this situation about. Solution. Stamp duty should be a flat 2% on everyone, unless the purchase price is $2 million and above, indexed by CPI.

CGT - Capital Gains Tax. This is a reason investors wont sell even if there is a profit in it for them. Many will die first before selling, to avoid paying CGT.

GST - Builders are pointing out that up to 30% of new housing is taken up by various imposts, planning costs, stamp duty, GST etc.

All the above, combined, has resulted in a significant drop in turnover of property sales in Victoria. Have a look at the statistics.

Turnover of sales in Victoria
2001 182,543 properties
2006 143,416 properties

A decrease of 21%. Twenty one percent or 39,127 fewer properties were sold and the trend has not yet reversed.

This is a huge reduction on the supply side of the economic equation, whilst demand has increased due to population trends and investor demand from negative gearing and individuals chasing wealth progams.

The supply side is throttled by taxation issues, all listed above. Stamp duty is the worst offender as individuals postpone decisions to trade up or down because of the ruinous effect of stamp duty and the cost of switching properties.

Our politicians have their head in the sand on this one, and tinker with bullshit changes around the edges to rates and rebates.

Yes house prices have been rising around the world but Victoria is front and centre on the state in the top 10 of unaffordable housing. Taxes on property throttle and distort the supply and demand equation. The 21% drop in turnover in an economy that is booming is a telling statistic. I ask you John Brumby what are you going to do about it?

If not, the answer is for the Commonwealth to make property taxation a federal tax and let them decide what is a rational levy on property transfers. New Zealand it is Nil