The Equity of Alternative Policies for the Australian Homeowner

D. M. Kiefer

The Economic Record, 1978, vol. 54, issue 1, 127-139

Abstract: The income‐tax treatment of homeowners and renters is an important instrument of national housing policy. Major changes in the treatment of homeowners occurred in 1975 and 1976; the second change focused especially on the problems of first‐buyers and was coincident with an expanded home‐savings grant scheme. As a further reform several writers have advocated the taxation of the rent imputed to homeowners. This paper develops a user cost of capital approach to estimate the distribution of housing costs along the income scale and between policy alternatives. The model indicates the vital importance of accounting for inflation whenever physical housing costs are inflating but mortgage costs are fixed in nominal terms. Although inflation is increasing housing costs at all income levels, high‐income homeowners appear to be suffering the greatest cost increases as the result of inflation. Furthermore, unless mortgages are indexed, the customary imputed‐rent formula is regressive.

Date: 1978
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