Westpac has been modelling the effects of the government's proposed capital gains tax, and concluded that it would be effective in lowering house prices:
House prices would fall, rents would rise but home ownership would improve if a capital gains or some other type of property tax was brought in according to a new study.
Westpac Bank has looked at six possible changes to the tax system, ranging from a capital gains, property or land taxes through to a new way of taxing rental income.
A 10 percent capital gains tax, a 1 percent land tax or 0.5 percent property tax would result in house prices falling 10 or 11 percent.
A deemed rate of return, which would tax landlords on an assumed rate of return, say 5 percent on their properties, could see prices fall by 20 percent.
In all cases, the tax changes would boost home ownership rates as investing became less attractive, but would also cause rents to rise.
Rents would rise because landleeches would have to actually make a (taxed) profit from their houses, rather than using rent as a loss-leader for untaxed capital gains. OTOH, the drop in house prices will make it far easier for people to own their own home, as well as removing some of the unearned, paper wealth of those who have benefited from the bubble, so it'll reduce inequality as well. The task for the government will be to ensure that there's a good supply of new houses, so that people can buy, rather than being trapped paying rent to some greedy Boomer forever.
