The amount of wealth tied up in residential property is enormous, says REA Group economist Angus Moore. Picture: Supplied
Hobart house prices have exploded seven times over since 1997.
However, exclusive research from PropTrack shows that when the decreasing value of money is considered, the inflation-adjusted figure reveals that home values have increased only 3.3 times.
In a year when Elton John topped the charts and Men in Black ruled the box office, Hobart’s ’97 median house price was $105,000.
If values followed inflation, that house would be worth $224,100, but instead, Hobart’s current median is $750,000.
REA Group economist Angus Moore said inflation over recent decades was substantial, but home price rises were even higher.
“When you look over such long periods, the increases are remarkable, even when accounting for inflation,” Mr Moore said.
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REA Group economist Angus Moore.
In Sandy Bay in 2000, the median house price was $209,000 and is now $1.31m; $205,500 of the apparent gain reflects inflation rather than real price growth, PropTrack’s figures say.
In West Hobart, the gap is $134,700, and in Bellerive it’s $133,700.
The federal government’s proposed changes to negative gearing and capital gains tax concessions are not yet legislated. They are intended to apply from July 2027.
Mr Moore said the original capital gains tax break — a 50 per cent discount on gains introduced by then Treasurer Peter Costello in 1999 — was built on an assumption that inflation would account for roughly half a property’s gain.
The runaway housing market since then has destroyed that logic, he said, explaining that home prices had risen by many times the rate of inflation in most areas.
Closing the loophole only for new buyers means the next generation will take a hit, Mr Moore said.
“If we see the kind of growth as before, the new system is less generous for most property owners,” Mr Moore said, confirming that under the new rules, on average, future investors will be forced to pay more tax.
No.44 Lochner St, West Hobart is listed with Fall Real Estate in the high $900,000s.
Petrusma Property has No.555 Sandy Bay Rd, Sandy Bay priced at $2.9m-plus.
Tax lead Jenny Wong from CPA Australia, Australia’s largest accounting body, said proposed capital gains tax changes would make inflation a far bigger part of property investment decisions.
She said investors should review their holdings before the new rules take effect, particularly if they are weighing whether to hold, sell or buy newly built homes.
“The key questions to ask your CPA or registered tax agent are: ‘How does this affect my cost base? Should I get a market valuation? And does my investment strategy still stack up under the new rules?’” Ms Wong said.
Jenny Wong, CPA Australia tax lead.
Mr Moore said the most meaningful way the government could have addressed generational inequality was by increasing housing supply.
“These changes have been motivated by rhetoric around intergenerational wealth. It’s not so much about housing policy as it is the structure of the tax system,” he said.
“The real solution really has to come back down to new homes. We need more housing.”
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