Safe As Australian Houses? Financial Returns, Volatility and Taxation Policy 1999-2015

Abstract

This paper estimates ex-post returns to Australian housing in Australian capital cities 1999 2015 considering the cycle of asset ownership; acquisition, annual operations, taxation and disposition. Modelling accommodates financial leverage and varying taxation regimes. Results confirm home ownership as a significant source of wealth creation. Financial leverage is beneficial for owners and investors, also increasing volatility. In general, owner-occupier returns exceed investors due to capital gains tax exemption. When returns are lower investors can be ‘immunised’ against greater losses due to ‘negative gearing’ tax shelter benefits. Significant regional variations exist both in the scale of returns and in temporal cycles.