Spare bedroom tax: Why it’s being condemned by homeowners

The controversial plans to tax spare bedrooms was met with condemnation by Australian property owners, but could those with extra bedrooms really end up paying more?

The idea for the tax was proposed in August at the Economic Reform Roundtable and suggests that households with more rooms than they actually use should be charged more tax in a move designed to free up housing stock.

It is hoped that the tax would prompt older Australians sitting in large family homes to list their property for sale and downsize into something smaller.

While the idea would free up larger homes for the next generation, questions have been raised as to whether it is it fair to hardworking Baby Boomers.

Treasurer Jim Chalmers refused to rule the idea out, which has drawn wide fury among homeowners in the time since.

The discussions were informed by nearly 900 submissions from experts, industry leaders and individuals in a process that explored everything from deregulation to tax reform.

While prime minister Anthony Albanese described the productivity commission as a healthy debate that made it clear that it’s a time of significant global uncertainty, he also points out that the nation is coming through the worst global inflation since the 1980s and the biggest energy crisis since the 1970s.

Mr Albanese said that delivering on the promise to build more homes has meant exploring how to cut red tape that’s holding back housing construction and clearing barriers holding back skilled workers and key projects.

The roundtable also heard that the 3000-page building code was too complex and needed stripping back to ensure more homes are built.

One of the more controversial tax plans heard was the plan to tax the spare bedroom to solve the housing crisis, which hasn’t been ruled out by policymakers. Which means it’s still on the table.

The idea, discussed by industry leaders and economists, follows stark warnings from the National Housing Supply and Affordability Council that the government’s National Housing Accord is set to fall 262,000 homes short of its ambitious target of delivering 1.2 million new homes to the market by 2030.

Who could this affect?

While most homes in Australia are occupied by one or two people, with three and four bedroom homes dominate the housing stock.

The spare bedroom tax would impact around three million homeowners who have two spare bedrooms, another three million homeowners with one spare bedroom, and more than one million homeowners rattling around in a home with three or more spare bedrooms.

The introduction of such a tax could spur more support for other tax reform issues that have previously reared their heads in the industry. This could include making it cheaper to move by abolishing stamp duty and replacing it with a broad-based land tax, which raises costs the more land you own.

Freeing up housing stock continues to be crucial in Australia, with PropTrack dating showing the median price of a home has risen 6.2% in the last year.

Sydney, Brisbane and Perth are the most expensive capital cities in which to buy a home, while Darwin has seen the most price growth in the last 12 months. 

But critics say it’s not fair that older Australians who want to stay in the family home where they raised their family are pressured to leave because of the housing crisis.

Politicians have also suggested that it’s not fair that the government can tax people who have a sizeable home.  

But what’s really at play here? When you look at it, the proposal to tax homeowners more because they have managed to afford to get into a bigger home than they ‘need’ is perhaps a mere decoy to the deeper issue of availability.

The nation needs more than 400,000 homes to be built by 2029 to meet population growth, according to the Urban Development Institute of Australia. Recent housing and construction-related policies designed to light a fire under the market are yet to take flight.

Meanwhile, the government has pointed the finger historic underinvestment and rising construction costs in recent years for missing its own housing target.

As the housing crisis continues, the debate over which policies will actually work and which policies have already failed continues as millions of Australians struggle to find an affordable place to live.

This article first appeared on Mortgage Choice and has been republished with permission.

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