Yes. Because we've made housing a viable investment, it keeps going up beyond inflation, so that currently you do need all the money from selling a house, including what's way above inflation on average, to be able to afford another. It's stupid, and eventually it's gonna break. I agree though, it's currently required to not tax captial gains on somewhere you live, else you'll get priced out.

In an idealised world, though, where we progressively stabilise housing prices, I would propose you get taxed on your capital gain, even if you live there, perhaps only on the gain above inflation, and be still able to buy a similar property with the money left over because the house prices wouldn't be going up by stupid amount every year.

I get where you're coming from, and perhaps I didn't include this nuance before: I want all capital gains taxed, including the place you live in, precisely to stop making housing "a good investment".

I should say then, I just don't think it's terribly fair on people who can't afford somewhere to own, because those who are in, get favourable tax relief. Someone worked for 10 years and made $600,000? Yeah, have fun getting taxed the normal amount, while those who own housing may have made a couple hundred grand in the same time and get taxed nothing. As an individual, sure, you're no better off if you buy another house, but you have the option of not buying another house and doing something else with the money tax free. A worker just get taxed and has no choice.

I think all captial gains should be taxed the same as income, with special provisions for housing to get good overall outcomes for inequality and the individual also. But not zero just because you lived in the house.

I just think zero captial gains on housing you live in isn't ideal either. Averaging the gain across the time you held it, at your tax bracket for each year, seems fairer (in a world where we also use other methods to stabilise the housing market).

Simple maths (but made up) example: you're in the 30% tax bracket every year (kept earning the same inflation equivalent amount of money). Let's say your capital gain is $300,000 above what inflation was during 10 years. You then aportion that gain over ten years according to some lookup table which lists the inflation rate for each financial year, and whatever it bumps your tax bracket to that year, you owe that much on that portion per year.

If we pretend inflation was 2% every year, then we just back calculate the inflation adjusted, equal portion of tax across the 10 years.

So for a steady 2% per year it would be something like this:

So you pay 30% (or whatever it brings your tax bracket to) on the equal inflation adjusted 1/10th of the total gain above inflation.

The tax office can just make yearly lookup tables, or calculators, to assist with this.

If this example maths doesn't make 100% sense, well whoops, this is back of the napkin brainstorming, but I think you can understand my intent.

Hope you enjoy this brainstorm lol