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this post was submitted on 12 Sep 2023
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I've been thinking about this perspective for a while now, so it's good to see the topic raised in the mainstream media. If you compare a business investment or buying shares in Australian companies with investing in property, there is much greater value to society and positive flow-on effects from business investing.
A business can use the investment to hire staff, produce more goods / services for export, and growing revenues mean more tax revenue for the government.
With investment properties, the owner buys a property by outbidding someone who may have just wanted a home and they then proceed to charge that same group with a rent burden. No additional jobs are created from the investment property and a cost burden is placed on the renter, reducing their disposable income.
As a society, we need to start thinking about investment properties in the way that we would think about fossil fuels. We know it is easy and it makes money, but it's bad for future generations and we need to transition to alternatives.
Completely agree. That property value grows over time in a fixed area is natural behaviour, as an area develops, density grows and demand increases. But that growth is not necessarily "productive". The only time that value is productive is if it incentivises redevelopment into higher density dwellings to meet the demand in that area. However this has been perverted into property owners who have paid off their property to just sit on the valuable land and reap the capital gains.
Capital gains from land value really needs to be taxed in a special way as you suggest. I would propose two approaches:
Adding land tax (and abolishing stamp duty on property) that's not based on your property value but on the value of a property you're on (so high density apartments would end up with minimal land tax
increasing capital gains from land tax by either having a progressive taxation rate on capital gains due to land value (which would ignore increase property value from renovations etc) or capping it entirely (so gains above that are taxed at 100%).