The immediate solution to the housing shortage is fitting more people into existing houses. But for those of us who own our home, there can be some hurdles.
The immediate solution to the housing shortage is fitting more people into existing houses. But for those of us who own our home, there can be some hurdles.
- Analysis
- Money
- Tax
- Capital gains tax
By Julia Hartman
January 21, 2025 — 11.17am
The immediate solution to the housing shortage is fitting more people into existing houses, something that would also help with cost of living pressures.
This may require some of us to compromise our housing standards, at least temporarily until more homes can be built, but surely this is better than people living in tents or cars. But for those of us who own our home, there can be some hurdles for taking in a boarder.
Firstly, the thought of moving all the kids into one room so you can rent out the other to someone who is currently homeless may not sound attractive to parents, but the fastest growing demographic of homelessness are women approaching retirement. A grandmotherly figure in a busy household could be a real bonus.
If you are a homeowner hit by high interest rates your problem is that the capital gains tax may end up costing you more than the rent you earn. Not to mention the record keeping requirements for the rest of the time you own the property.
This is an area that the government could fix, by widening the six-year rule to include homeowners who rent out only part of their home. Currently, if you are living in your home while it is earning any income at all, you are subject to capital gains tax (CGT).
Renting out half of it means that only 50 per cent of the property is covered by your main residence exemption. The rest is exposed to CGT.
Removing the CGT disincentive for a homeowner to take in a boarder could work wonders.
The six-year rule, which allows you to protect your property with your main residence exemption while it is earning income, only applies if you are completely absent from it. This generally benefits the wealthy (including parliamentarians moving to Canberra) rather than those struggling with interest rates and other cost of living pressures.
If you are a tenant the barriers could be the terms of the lease or the effect it may have on your rental assistance. Maybe there is some flexibility that the government can introduce in that regard. Rent assistance is a financial incentive to live alone.
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The much advocated lowering of interest rates has been proven to increase the price of a home. Tax penalties on landlords was shown in Paul Keating’s day to decrease the number of homes available for rent so dramatically, that he had to back down quickly.
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Caps on rents are also counterproductive, especially when landlords are facing higher interest rates. The higher rents go, the more landlords that enter the market, meeting demand and eventually bringing rents down. The immediate benefit of higher rents is a tenant will be more likely to share their home. Possibly doubling the housing stock with immediate effect.
An uncomfortable truth is that allowing rents to increase until more people are forced to share houses, is, in fact, the quickest solution to homelessness as well as a long-term solution to the shortage of homes.
Removing the CGT disincentive for a homeowner to take in a boarder could work wonders. Why is this not part of popular discussion?
Over the decades we have eroded the ability of a family to own a home on one income. It now requires both parents working full-time and children in care for a family to be able to afford a home. There is nowhere else to go here.
You may consider more crowded housing unsavoury, but what have families got left to sacrifice to finance the unprecedented profits of supermarkets and banks?
Julia Hartman founded BAN TACS Accountants more than 30 years ago and is still passionate about all things tax.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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