Chapter 2Supporting productive investment
Introduction
2.1The capital gains tax discount (CGTD) was initially introduced to 'enliven and invigorate the Australian equities markets'. After considering the productivity growth rationale for the introduction of the CGTD, this chapter examines how economic productivity is affected by the ways in which the discount influences the:
allocation of capital;
supply of new housing; and
productivity of the workforce.
2.2Options for reforming the CGTD are outlined and discussed in Chapter 4 of this report.
Productivity rationale for the CGTD
2.3Some inquiry participants reflected on the original purpose of the CGTD as being to foster investment by taxing capital more favourably than labour. Several of these argued the current CGTD rate overcompensates property investors.
2.4The Ralph Review (discussed in Chapter 1) stated the following rationale for the introduction of the CGTD:
The Review's recommendations for capital gains taxation are designed to enliven and invigorate the Australian equities markets, to stimulate greater participation by individuals, and to achieve a better allocation of the nation's capital resources. In the first three or four years of the new regime there is likely to be considerable extra turnover on Australian equity markets as equity holders respond to reduced lock-in by realigning their portfolios. Even in the medium to longer-term, the Review expects a heightened level of realisations activity among individual shareholders and CIVs [Collective Investment Vehicles].
2.5Mr Brendan Coates, from the Grattan Institute, pointed out that, while there is a conventional, general agreement that returns on capital should be taxed at a lower rate than labour, in his view property investors have been 'overcompensated for inflation'. As discussed in Chapter 3, when the CGTD is combined with negative gearing, 'the tax system creates strong incentives for debt finance and speculative investments'.
2.6However, this conventional general agreement does not go unchallenged. Dr Kathryn James, from the University of Melbourne, questioned the rationale for taxing capital income more lightly than labour income, saying this belief is 'increasingly disputed':
Empirical evidence consistently shows that taxing capital income affects tax planning behaviour more so than underlying substantive economic behaviour, and evidence from [Organisation for Economic Co-operation and Development (OECD)] countries—who, for the past four decades, have all moved to tax capital gains preferentially—consistently shows inequality increasing, especially with the share going to the top 10 per cent and one per cent of income earners who generate the majority of capital gains.
2.7Dr Robert Breunig, from the Tax & Transfer Policy Institute, agreed that this economic theory 'has come under critique because there's a lot of investment that's not in productive capacity and there's a lot of investment that's simply getting rents'. He provided the following example related to housing:
I buy a house. That house goes up in value, not because of any hard work that I do but because of government zoning laws and because of infrastructure that government builds to contribute to that housing. I should be finding a way to tax that. That should not be untaxed…So I think the orthodoxy today is probably that savings should not be taxed at zero, but they should be taxed at a lower rate than labour income. The reason for that is partly that savings are held for a long period of time, and, with any inflation, if you hold an asset for a sufficiently long period of time, you end up having a 100 per cent tax rate.
2.8Dr Breunig elaborated on this point, saying savings should be taxed at a lower rate than labour because 'a lot of that savings income goes into productive capital', which in turn generates productivity increases, which translate into wages for workers. However, Dr Breunig explained that:
If that money is going into non-productive assets, that rationale no longer makes sense. But there are still a lot of savings in Australia that are going into productive investment. There is a lot of superannuation and a lot of shareholding.
2.9Mr Alan Kohler, who appeared in a private capacity, proposed that the CGTD overcompensates property investors compared to the CPI indexation model that operated prior to 1999. He explained:
The inflation rate in that year, 1999, was 1.8 per cent. The average time of owning a house for investors was about seven or eight years. If you multiply the inflation rate of that year with the average time to own a house, you get about a 13 to 15 per cent reduction in the capital gains tax. So, obviously, 50 per cent is three times what was necessary to replace the inflation adjustment…
Even if you take the average CPI over the subsequent eight years from 1999, that was 3.2 per cent. If you multiply that by the average period of owning a house, it's still half, 50 per cent, of the capital gains that were actually brought in. Currently, the CPI is 3.2 per cent again, so 50 per cent is still twice what it needs to be to adjust for inflation.
2.10This led Mr Kohler to question why such a generous scheme was introduced. He noted that the government was 'interested in encouraging investment in shares, to promote the idea of Australians becoming a nation of small capitalists, of shareowners', believing this would assist in productivity. However, the CGTD has not achieved that aim because shortly after its introduction, in March 2000, 'the dotcom bubble burst', investing in shares became unfashionable:
Probably it's the case that if the discount of the capital gains tax had been introduced five years earlier then maybe it would've been more popular and would've actually led to people using it to buy shares rather than investment property. But in fact what happened was that it led to people using it to invest in property, as opposed to shares, because shares were on the nose.
2.11Mr Saul Eslake, who appeared in a private capacity, agreed the CGTD has failed to 'turn Australia into a nation of entrepreneurs and shareholders'. He supported this assertion with the following statistics:
The proportion of the adult population who own shares has dropped from 41 per cent in 1998 to 38 per cent as of 2023. The proportion of the employed workforce who are owner-managers of independent enterprises has fallen from just under 20 per cent in 1999 to 15.3 per cent as of last year.
2.12Mr Eslake shared the following statistics to demonstrate the CGTD has contributed to:
…Australia becoming even more of a nation of property speculators than we already were. The proportion of taxpayers reporting rental property income to the tax office rose from 14.3 per cent in the 1997–98 financial year to a peak of 20.8 per cent in 2013–14, and at 18 per cent in the most recent year for which we have data, 2022–23, it's still well above the level prior to the introduction of the 50 per cent capital gains tax discount.
2.13Professor Chris Evans shared the outcome of two decades of research into the CGTD, which indicated that it 'has produced outcomes that substantially diverge from its original policy intent'. Among other outcomes identified, the discount 'has contributed to tax planning, lock-effects, and misallocation of capital'. Further, Professor Evans' research suggested the CGTD has 'produced significant inequities, inefficiencies, revenue losses and compliance burdens, while failing to meet the principles of a well-designed tax system'.
2.14The NSW Treasury agreed that the CGTD makes some assets more attractive than others, which ultimately affects 'overall investment behaviour and asset allocation, which may have flow-on effects for Australia's productive capacity'.
Impacts on business investment
2.15The Australia Institute argued the CGTD has failed to encourage business investment, noting that average annual business investment growth has actually declined by 40 per cent since the introduction of the discount.
2.16The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) reported that it is difficult for small businesses with annual revenue between $2 million and $20 million to secure capital. According to the results of a survey of 1212 businesses, 'two thirds of respondents had tried to access some level of equity in the previous three years and over half were unsuccessful'.
2.17ASBFEO maintained that equity funding for smaller businesses in Australia is 'underdeveloped compared to other OECD countries such as the UK, France, and Canada, where SMEs have greater access to capital growth'. Access to equity is important for business growth, according to ASBFEO:
…as it allows founders to retain control while freeing up resources for innovation and expansion rather than servicing debt. It also provides access to strategic expertise that can accelerate growth.
2.18ASBFEO remarked that there is opportunity to extend access to equity for businesses that have operated for more than two years with revenue between $2 million and $20 million. These businesses 'account for 42 per cent of total employment and are outperforming the broader economy, with a compound annual growth rate of 5.7 per cent compared to 4.3 per cent'. In ASBFEO's view, any proposed changes to the CGTD:
…should also consider the potential impacts on small business' access to capital. This includes any broader impacts for the economy and productivity if access to capital were to become more limited for early stage and growing small business.
2.19Mr Geoff Wilson AO argued that current tax settings have contributed to the prevailing economic environment where:
…non-mining investment has remained weak relative to historical levels; access to long-term growth capital for small and medium enterprises [SME] is constrained; and Australia's venture and growth capital markets remain smaller than those of comparable economies.
2.20Reforming the CGTD to deprioritise investment in property assets would, in Mr Wilson's view, encourage long-term investment in more productive business ventures. That outcome would support business expansion and increase SME access to funding. Increased capital investment in productive businesses would contribute to greater labour productivity and real wage growth.
2.21Conversely, the Centre for Independent Studies (CIS) suggested that viewing the CGTD solely in relation to housing does not accurately reflect how it is used by investors. It noted that housing does not account for most of the capital gains events reported to the Australian Taxation Office:
Taxation statistics on the composition of current year (gross) capital gains in 2022–23 (latest available, but a representative year) point to real estate transactions accounting for 40% of all CGT events for individual taxpayers and only 5% for superannuation funds. As 'real estate' includes the non-residential type, the proportions for housing would be even lower. Allowing housing to drive CGT policy would therefore overlook the dominance of other asset types.
2.22However, the true extent of property sales is likely to be underestimated because trusts, which make up 36 per cent of capital gains tax claims would also be made up of property sales, but Treasury does not hold this information of assets sold within a trust.
2.23CIS supported the retention of the CGTD, arguing it boosts productive investment in the Australian economy:
All things considered, it is difficult to make a case that the CGT discount is inimical to productivity growth. To the contrary, investment and innovation are critical to productivity growth and the CGT discount is meant to encourage investment. Removing or reducing the discount would raise the cost of capital and be detrimental to investment.
2.24CIS argued that weak productivity growth is attributable to other factors and removing the CGTD would only serve to further weaken business investment:
The rationale for the discount remains today. Indeed, it is needed more than ever in light of the weakness of business investment and productivity growth. This is not to suggest that the discount alone will spark a revival of entrepreneurship, innovation and investment. The fact that business investment has been weak for a long time even with the discount in place points to the case for another agenda including factors like deregulation to help lift investment.
Impact of the CGTD on housing investment
2.25Many inquiry participants argued the CGTD has made housing a more attractive investment choice compared to other options, which weakens the productive capacity of the Australian economy.
2.26Economist and former Secretary to the Australian Treasury, Dr Ken Henry, highlighted the shortcomings of the current tax system and explained how it promotes the sheltering of wage and salary income from taxation through rental property investing:
One of the outcomes of this tax system that we still have is that it encourages people to do exactly what Commissioner Asprey related back in the 1970s, which is to find all sorts of creative ways of sheltering wage and salary income from tax, particularly from the top marginal tax rate. That brings me to rental property investments, because that's what they're about. Rental property investments are primarily, under Australian tax law, a vehicle for sheltering wage and salary income from tax.
2.27The UNSW City Futures Research Centre posited that investing in Australian property is comparatively less risky than investing in other assets. With capital gains from property taxed in the same way as those derived from riskier assets, investors are 'disproportionately attracted to housing'. That situation creates problems 'for national economic productivity, however, [as] this is liable to stifle investment in more productive activities such as small business start-ups and human capital formation'.
2.28Providing favourable tax incentives to property investors also has implications at the household level. According to the UNSW City Futures Research Centre:
…the inflationary impact of tax-advantaged over-investment in residential property feeds through into higher rents and mortgage payments, exposing many housing consumers to stressful housing cost burdens. These, in turn, have the potential to crowd out other forms of household expenditure with greater employment-generating qualities. These observations suggest that over-expensive housing—partly attributable to existing tax settings—is liable to depress national economic productivity as well as impairing household welfare for those directly affected.
2.29The Financial Advice Association of Australia argued that the CGTD plays an 'important role' in the Australian taxation system. However, it conceded that, while the CGTD encourages capital investment in productive assets, 'not all assets demonstrate the same prospects of growing the overall economy and employing more Australians'.
2.30Economist, Mr Cathal Leslie, reminded the committee that '[c]apital is not unlimited', and if a large portion of it is directed towards existing housing it simply 'increases the share of savings tied up in bidding for the same stock of housing', directing it away from 'new machinery, technology, intellectual property, skills, and genuinely additional housing'. Mr Leslie noted that this lowers business investment and weakens productivity growth, saying:
…while some investment in housing is desirable, sustained real house price appreciation driven by land scarcity and pro-demand-side policies does little to raise output per hour worked. By contrast, investment in technology, equipment, and skills has much larger productivity pay-offs.
2.31According to Mr Leslie, Australia 'has quite high rates of tax', including payroll tax and corporate tax, so the 'preferential treatment to land windfalls' offered by the CGTD negatively impacts 'our ability to invest in other sectors of the economy' and disincentivises work. Mr Leslie submitted that, if capital from land was reallocated to business investment, there would be 'a benefit for workers, including those who do not hold capital assets, as the increased capital investment would contribute to higher productivity and higher wages'.
2.32Mrs Rayna Fahey, from Prosper Australia, proposed that a lot of the capital gains in Australia are not derived from 'new, productive investment'. In her view, 'a significant share of capital gains…come from gains in land value', which occur:
…not because an owner works harder or innovates, but because the population grows, infrastructure is built, zoning changes and communities develop. These are community created gains, not individual.
When we apply a discounted capital gains tax to those gains, we're not primarily encouraging productive enterprise, we are rewarding the passive holding of appreciating land. The result is very predictable, and we have been tracking and observing this for 130 years: more speculative behaviour, higher land prices, greater barriers to entry for young Australians and genuine developers, and volatility tied to asset cycles rather than productive growth.
2.33Mrs Fahey pointed out that most of the time the CGTD is not being used for its original purpose 'to encourage business productivity', with depreciation used more for this purpose:
If I set up a cafe and I buy a coffee machine, that's a piece of capital. That's going to allow me to generate income. It's going to depreciate as an asset, unless it becomes some kind of weird hipster trendy coffee machine that I can get a speculative value off. But most of the time that is not the case. So we really want to make sure that we're treating those two things separately.
2.34The Australian Council of Trade Unions (ACTU) noted the CGTD was introduced 'to improve incentives for investor risk and innovation and better allocate capital' and, as a result, 'we would have expected improvements in productivity'. However, research published by the OECD has concluded that the CGTD 'can generate significant economic distortions, may contribute little additional investment to a domestic economy, and that it appears to have little impact on overall economic growth'.
2.35Mr Joshua Newton, from the Australian Manufacturing Workers Union (AMWU), suggested directing capital to housing is not the most effective way to increase productivity, because it does not create jobs or boost business productivity:
If we can change tax policy settings in order to have that money going through—obviously the determinants of productivity on a high-level are [research and development (R&D)' and fiscal capital investment. Anything which can have physical capital investment going into these sorts of sectors is obviously something which we see as advantageous.
2.36Mr Newton also pointed out 'gross fixed capital formation has fallen off the cliff since the 1970s'. He suggested reform needs to look at ways 'to move capital in that direction away from an unproductive asset'.
2.37The Tax Justice Network (TJN) argued a shift in capital allocation occurred at a similar time to the introduction of the CGTD in 1999. According to TJN, the surge in investment in rental property contributed to house price increases in the 2000s and again in the mid-2010s. It suggested most of this investment resulted in limited productivity gain for Australia and 'inflated the cost of land and homes' compared with other assets.
CGTD and speculation in the housing market
2.38Many inquiry participants raised concerns about increased speculative behaviour in the Australian housing market and the financial risk associated with the provision of credit to property investors.
2.39Mr Leslie outlined the tax incentives that encourage investors to speculate on existing housing as follows:
banks are willing to extend loans at far higher loan-to-value (LVR) ratios than on alternative investments (i.e. 80% LVR);
there are no margin calls if the price of the underlying asset falls in value;
full deductibility of interest and many holding costs against other income; and
the expectation of sustained capital gains, particularly in major cities, is driven by factors such as planning, income growth and migration.
2.40Mr Leslie explained that 'together these settings make leveraged investment in existing housing highly attractive on an after-tax basis', with high-income investors able to access 'very low, or even negative effective marginal tax rates':
A typical pattern for a geared investor is to accept a negative cash flow, use those cash losses to reduce tax on labour income, and then rely on a tax-favoured capital gain on eventual sale. In this way, the CGT discount effectively 'completes the circuit' for speculative property investment.
2.41The AMWU pointed out that housing has become a major source of income in Australia, saying that from 1960 to 1980, the average annual value gain of housing was 9.3 per cent of GDP, whereas it was over 24 per cent of GDP in the period since 2000. In fact, for 16 out of 29 quarters prior to June 2019, the AMWU noted, 'the median Sydney home earnt more than the median full-time worker'.
2.42The AMWU suggested this is demonstrative of a 'shifting mindset towards housing as a tool of capital accumulation', which is driving speculation in the housing market.
2.43This 'speculative mindset' drives the decisions of most Australian property investors, according to the UNSW City Future Research Centre:
Research evidence demonstrates that the prioritisation of capital growth over a rental income stream is dominant among Australia's individual private landlords. As a result, individual investor behaviour is likely to be especially sensitive to capital growth prospects. In other words, a 'speculative' mindset. This importantly contrasts with the prime motivation of institutional investors in the purpose-built student housing and 'build to rent' sectors where long term rental yield is the key business motivation.
2.44The UNSW City Future Research Centre proposed the speculative mindset is not a new or temporary one. It noted that, since the late 2000s, most Australian property investors have 'identified long-term investing or capital gains as the most important reason for having invested rather than rental income'. That trend was reinforced by a survey of private landlords in Western Sydney conducted by the UNSW City Futures Research Centre in the mid-2010s, which:
…found that 83% considered capital growth prospects as 'highly important' or 'extremely important' in their acquisition locational choice. Rental return expectations were similarly important for only 64% of the cohort.
2.45According to the UNSW City Future Research Centre, property markets that are driven by speculation rather than long-term rental yields are more likely to be volatile. In its view, volatile property markets 'amplify booms and slumps in the wider economy'.
2.46National Shelter shared this concern about heightened volatility and the implications it could have on the macroeconomy and wider Australian society, saying the combination of the CGTD, negative gearing, low interest rates and 'relatively lax prudential requirements' is incentivising investors to 'highly leverage to purchase multiple assets on which they expect significant capital gains'. In National Shelter's view, this is 'a macro-economic concern' and a significant factor in 'rapidly rising, unaffordable residential property prices that stifle productivity and supercharge housing and wealth inequality'.
2.47The ACTU noted that bank loans to investors have increased to 40.6 per cent and argued that the 'surge' in investor loans 'speaks to deep, underlying problems in the Australian economy', where weak productivity is coupled with an overinvestment in existing housing stock:
In September 2025, 82.8 per cent of total investor loans were used to speculate on the existing housing stock. A mere 12.6 per cent were used for new housing builds, a share which has declined over the last year from 14.1 per cent, also an incredibly low proportion.
2.48Chief Executive Officer of Think Forward, Mr Thomas Walker, observed that the CGTD 'rewards the wrong things', by rewarding:
…speculation and rent seeking over work, ideas and learning. As a country, we've basically got this big, flashing sign saying, 'Hey, don't go to university, don't become an engineer, don't become a nurse, because what we're going to reward is speculation'. This is also actively putting or economy and future at risk. Our economy is becoming increasingly dependent on a narrow band of wealthy investors, ageing consumers and family inheritances, because many younger people can't afford to get ahead. If they can't get ahead, then how are they expected to learn or create or start a new business?
2.49Mr Walker identified an additional burden on young people caused by inflated house prices, which further weighs on Australia's productivity by making it harder to invest in ideas, new businesses or take risks.
2.50Conversely, Professor Alan Robson, Deputy Chair of the Productivity Commission, noted that it is possible to view housing as a productive investment:
In principle, housing provides services to people. They value it. It puts a roof over people's heads. It provides a source of income to landlords and a source of capital gains to people who are saving. In that sense, to the extent that it's valued, it's productive.
2.51However, Dr Robson stressed that the productivity commission has not done any work on the question of 'whether tax arrangements create a distortion among different asset classes'. He contended that a good tax system:
…would be something that didn't distort too much between different asset classes or savings vehicles…because one benefit you provide in one area tends to come at a cost to another area and prevents the value of resources flowing to their highest value, and that drags down overall productivity.
Disproportionate servicing of housing debt over business investment
2.52Some inquiry participants commented on the increasing provision of credit to property investors relative to business lending, and the connected increase in debt carried by Australian households.
2.53Prior to the introduction of the CGTD, the provision of credit to business was greater than the credit provided to house purchasers, according to The Australia Institute:
In September 1999 business lending made up 47% of all credit and lending for housing made up 42% of all credit. Today business lending makes up only 33% of credit, while housing makes up 62% of credit.
Figure 2.1Proportion of lending going to business, housing, and other personal
Source: The Australia Institute, Submission 35, p. 22
2.54Mr Kohler suggested this is a result of both rising house prices and encouragement from banking regulators for banks to move more towards loans that are 'secured by real estate as opposed to the cash flow of businesses'. According to Mr Kohler, the global financial crisis changed the way banks were regulated in a way that increased the desirability of real estate security.
2.55The Chief Executive Officer of the e61 Institute, Mr Michael Brennan, identified two other global and domestic factors that played a larger role than the CGTD in shifting bank credit from business to housing loans. The first was the global shift to a lower inflationary environment and the second, which is specific to Australia, was the increase in real incomes associated with the significant increase in trade with China.
CGTD preferences existing housing
2.56As discussed in Chapter 3, many submitters indicated that the CGTD encourages investors to purchase existing homes rather than construct new ones, which increases demand for the same pool of housing, increases purchase prices, and places upward pressure on rents. Ultimately housing becomes less affordable, especially for low-income households, young people, older renters, and single-parent families.
2.57According to ABS data, over the past five years an average 92 per cent of property investor lending has gone into existing housing. This eight per cent going to new construction can be contrasted with the 20 per cent average of lending for owner occupiers going into new homes.
2.58The Australian Council of Social Service (ACOSS) reported that 'credit for rental property investment expanded dramatically after the CGT discount was introduced in 1999', leading to 'housing booms' in the 2000s and 2010s. This trend is illustrated in Figure 2.2.
Figure 2.2Value of investor loans for existing and new construction
Source: ACOSS, Submission 46, p. 11.
2.59As shown in Figure 2.3, ACOSS demonstrated that the total value of land in Australia rose at a faster rate than 'other assets such as machinery and equipment used by active businesses'. It pointed out:
After the introduction of the CGT discount in 1999, the total value of land in Australia rose from around 160% of Gross Domestic Product (GDP) to 260% of GDP by 2014. Former RBA Governor Lowe (then Head of Research at the Bank) raised concerns that investment in land was crowding out more productive investment.
Figure 2.3Net wealth by asset (% of GDP in current prices)
Source: ACOSS, Submission 46, p. 12.
2.60ACT Shelter contended that, while investment in rental housing 'should expand supply and help moderate rents over time', that has not occurred in Australia because investors are incentivised to invest in existing houses rather than new construction. It explained that investors are drawn to 'more expensive properties with greater prospects for high capital gains', contributing to 'the steady decline in properties at the affordable end of the rental market, while the number of properties for rent at higher prices continues to grow'.
2.61According to ACT Shelter, this dynamic 'inflates housing prices without adding to overall housing stock', entrenching 'a cycle in which speculative investment drives prices higher, to the detriment of renters and aspiring homeowners alike'.
2.62The Planning Institute of Australia (PIA) submitted that the preference for investment in existing housing stock 'often displaces more productive capital uses', including:
medium-density and infill housing in well-located areas
urban renewal precincts that require coordinated investment
employment land and innovation clusters
infrastructure and enabling works required to support growth.
2.63PIA argued the CGTD directs capital towards 'unproductive land value escalation instead of new supply that supports labour markets, workforce participation and economic clustering'.
2.64Ms Michele Bullock, the Governor of the Reserve Bank of Australia, has also reflected on why Australian investors may preference existing housing over investing in new construction, saying:
As to the way that investors choose to buy established housing or new housing, I don't know why that may be the case. It might be that there are certain advantages taxation-wise for doing that. But again, with all these things, the whole housing market issue basically comes down to a supply and demand story. As we've talked about before, we aren't building enough houses and demand for houses obviously is outstripping that. That's what's driving not only the housing prices issue but also the rental situation and vacancy rates.
2.65Mr Tim Reardon, from HIA, contended that a reduction in the cost associated with the construction of new houses would adjust the cost-benefit analysis investors and owner occupiers make when deciding whether to purchase new or existing housing.
Effects on labour productivity
2.66Some inquiry participants discussed the effect of higher property prices on labour productivity and suggested some of those costs are attributable to the CGTD. For instance, National Shelter identified a range of 'indirect effects negatively impacting productivity in Australia' that are linked to the CGTD, including:
Reducing labour mobility (as people tend to stay put when it is difficult to find safe, secure, affordable housing)
Creating a spatial mismatch between employment centres and where affordable housing is located, forcing people to commute for longer—this can also negatively impact business recruitment while worsening congestion in large and medium-sized cities and urban areas
When people spend more than they can afford on housing, their education and productivity is affected directly (because they do not have the financial capacity to further their education) and indirectly (because it affects their physical and mental health and long-term wellbeing).
2.67The Australian Housing and Urban Research Institute (AHURI) agreed that the CGTD 'also affects labour force potential and availability'. It referred to 'strong evidence that Australia's tax system has contributed to poor housing outcomes and economic inefficiency more generally'.
2.68AHURI pointed out that, while low-income households play a critical role in the Australian workforce, they are finding it increasingly difficult to find affordable rental properties near employment in major urban areas:
Over two decades, the nation's shortage of affordable dwellings available for low-income households in the private rental sector grew to 173,000, with the most extreme shortage in Sydney (60,000 dwellings), where 71 per cent of all low-income private rental households pay unaffordable rent.
2.69Research conducted by AHURI shows that the housing system has likely contributed to a weakening of urban productivity growth as there is less affordable housing available in central parts of Australian cities. For example, in Sydney, the percentage of people on lower incomes living within 10 kilometres of the central business district fell by 82 per cent between 1986 and 2011.
2.70The UNSW City Futures Research Centre considered high house prices as a deterrent for foreign investment in capital cities, saying:
American research has estimated that high house prices have created new economic geographies of production that have reduced US productivity and GDP by 10%. Associated with this is the scenario where footloose and often highly productive international companies are discouraged from siting new facilities in cities such as Sydney by housing affordability anxieties.
2.71Better Renting added that the rental market does not currently enable renters to fully contribute to society and economic productivity, because:
Unstable, unaffordable, and unhealthy rental homes provide a poor foundation for productivity. Currently, too many renters are forced to move every year or two, have to choose between paying unaffordable rent or buying food and medicines, and are too scared to request essential maintenance or upgrades. As long as governments fail to address the systemic causes of these challenges, which include the CGT discount and negative gearing, renters will struggle to contribute fully to their employment, education, caring, and volunteering responsibilities, let alone maintain their health or wellbeing.
2.72Ms Madeline Cooper, a contributor to Think Forward who has more than 20 years of lived experience as a renter, discussed what the lack of affordable rental housing near employment means for essential workers:
…if you are working in the centre of Melbourne or Sydney and you're an essential worker, you are going to have to be commuting an hour or an hour and a half if you are wanting to buy. If you want to rent, it's maybe slightly less. But do we want people who have just worked a 12-hour shift as an ambulance officer or as a nurse to then have to drive an hour at 2 am? That seems ridiculous to me.
2.73Ms Cooper suggested offering longer lease terms might help renters better connect with their community and improve productivity.
Reform options and findings
2.74Inquiry participants made several suggestions for how the CGTD could be reformed to address the productivity issues raised in this chapter. These are outlined and discussed in Chapter 4 of this report, with Chapter 5 presenting the committee's findings.