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Aussie John’s $200m mansion sale pinpoints critical problem with real estate market

by Michael West | May 27, 2024 | Economy & Markets, Latest Posts

Aussie John Symond’s tax-free $200m home sale would not be on the cards if not for the failure of politicians to stand up to the property lobby. Michael West on the critical problem of housing and the obvious solutions.

Aussie John Symond has put his “iconic” Point Piper home on the market for $200m. What you will not see in the green-eyed and fawning media coverage is that John’s profit on the Woolsey Rd residence is tax free.

You will see amid the “exuding elegance and comfort”, “gun-barrel views of the Opera House” and stylish design of the undercover parking for 27 cars, is that John’s profit on the gaudy mausoleum will be tax-free thanks to the capital tax gains relief introduce by the John Howard government around the turn of the century.

That is, if the house owes the founder of Aussie Home Loans $40m, he makes a tax-free profit of $160m if he achieves the $200m asking price. 

How much has this CGT giveaway for wealthy baby boomers contributed to the outrageous surge in property prices in Australia – up another 20% even over the past year? It’s hard to tell exactly but this chart would indicate it is certainly one factor.

House prices soaring

Check out how residential property prices began to soar above household income from around the time the measure was introduced.

The housing affordability and rental crises have economists in furious debate over the cause. Yes, negative gearing, Airbnb, money laundering, supply, unfettered migration and the spree of foreign buyers all play a part.

Mansion flipping the family home? A tax haven for millions

Overall, this cocktail of factors – mostly due to the policies of successive governments – amounts to one deadly outcome which has seen Sydney’s future branded as the city with no grandchildren and the second most expensive city in the world for real estate after Hong Kong.

Simply, investors have been encouraged to compete with people wanting somewhere to live. It is a gargantuan policy failure whose impact will be felt for generations.

And indisputably, the benefits fall to the wealthy over ordinary Australians.

Australia real estate

Screenshot

 Yet, in the recent Budget and indeed in Peter Dutton’s Budget Reply, none of these things were raised. Well, apart from Dutton proposing a band-aid 2-year ban on foreign buyers and large migration cuts. But negative gearing and so forth were not raised. And negative gearing is a substantial cause – it goes to the overall mollycoddling of investors over home-buyers.

Australia real estate

And as Greg Jericho points out in this chart above, the CGT changes “set fire” to negative gearing. So it is not as though our elected officials have no measures to address the crisis. They are staring us all in the face.

So it is that we are seeing a ‘mansion flipping epidemic’ of wealthy people selling their ‘family homes’ after a few years to lock in large tax-free profits. This could easily be capped. Of course, it makes no sense in terms of policy as real estate is a fairly non-productive asset. If capital were diverted elsewhere to equity or business investment it would create more jobs and more growth.

One aspect mostly ignored, however, is how the deluge of foreign cash has set fire to both the CGT and negative gearing. This is because it is mostly secret. Much of the money coming out of China is ‘black money’. Chinese nationals are only allowed to take a certain amount of cash out, and so there are ways to skirt these restrictions.

This is why lawyers, accountants and property developers have been lobbying against AML-CTF laws (money laundering) which were supposed to be introduced 17 years ago.

Crackdowns and Crickets: money-laundering to keep firing up real estate … for now

This has led to what the ‘property porn’ media has dubbed an ‘arms race‘ at the top end. Although supporters may decry this phenomenon as contained to the ‘top end’, there are ripple effects across the whole sector. The top end drags up all prices. So we see ludicrous prices achieved at auction month after month.

australia real estate

For instance, this North Bondi house sale for $10.7m.

Thanks to the mansion flipping epidemic, there were $48B in capital gains tax concessions on “main residences last year. So, if you have just found yourself in a tent, rest assured, if you still have a job and pay tax you are at least helping to subsidise somebody else’s home.

PM Anthony Albanese was asked earlier this year if taxing the family home might be on the cards. No. “Full stop. Exclamation mark”.

Taxing the family home is political poison. Because the minute any reasonable proposition was plonked on the table, some lobby group and their PR people would be out of the blocks with a campaign in Murdoch media or Nine showing an old couple on zimmer frames looking beleaguered, saying, “we bought our home for 25k back in 1952 and now they want to tax us out of our nursing home …”

The ripple effect of outrageous prices is that younger workers are being forced out of metropolitan markets, in turn forcing prices rapidly higher in the regions where they can afford to buy.

In turn, this makes property unaffordable for ordinary workers in the regions who are compelled to spend ever larger proportions of their income to find a home while interest rates rise.

On the flip side, of the 122,494 people experiencing homelessness in Australia in 2021, two in five (39.1%) were living in ‘severely’ crowded dwellings. One in five (19.8%) were in supported accommodation for the homeless. One in six (18.1%) living in boarding houses.

The crisis is deepening, and the measures are there to fix it, just not the political will. Harry Chemay lays out the problems and the solutions in his Housing Hunger Games trilogy.

Songbirds and snakes. How to end the ‘Hunger Games’ of housing affordability

 

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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