Housing wealth holds the key to reducing income inequality

Rather than bemoaning the spread of wealth to ordinary families, therefore, we need to focus on extending the opportunities for home ownership to more low-income households who are willing to work and to save. As Mark Latham said in 2002 (pdf, 121KB): "The only problem with the ownership revolution is that there are not enough owners."

Attempts to make home ownership more affordable by boosting purchasing power can be counter-productive. The $7000 first-home buyers' grant, for example, makes housing more - rather than less - expensive, because each recipient bids $7000 more than they could before, and prices rise accordingly. The only people who gain are owners whose capital gains increase at taxpayers' expense.

Tax breaks for home buyers do not help much either. The fact that capital gains on shares and other assets are taxed, but gains from domestic housing are not, encourages people to put more of their cash into their homes, and this pushes up prices. Similarly, investors are encouraged into housing by negative gearing and the partial capital gains tax exemption, and this too fuels the housing market. One in six taxpayers now owns an investment property, yet prices are way out of line with rental incomes.

A more effective way of making housing more affordable would be to increase supply. This means releasing more building land and easing current planning restrictions so supply can keep up with rising demand.

We should welcome the fact that ordinary families now own assets of high value that can be passed on to their children. Instead of fretting about wealth inequality, we should get on with extending the opportunity for even more families to start accumulating wealth by buying a house.