Given Australia's current imigration levels I find it hard to believe that it is responsible for the current hight price of houses.

However, to bring house prices down is a simple task, just remove negative gearing. This will cause a crash in house prices. As a side effect it will also bankraupt a fair number of middle age people who are trying to save for retirement or pay for their kids education or entry into the housing market (it's a vicious cycle). A little bit of pain but long term gain, at least for those young new home buyers.

Another option could be to change Australian's definition of a suitable home. Australians seem to think that if they don't have a room for each kid, one for the TV another for the computer, a parent's retreat, a gardern with a pool, and a three car garage then its just not a house. As well as leading to urban sprawl it will also push up land prices, and push up house prices closer to CBD areas simply because there are fewer homes. Anybody got population density figures for citiies like NY, Tokyo, HK, London etc?

When I look at Sydney I'm always amazed at how few residential high rise buildings they are and how far and wide the city sprawls.

And remember lots of Americans call a trailer in a trailer park home.

Paul

More socialistic drivel – house prices “above their correct level” and “allowed to stay at unrealistic levels”; with the only solutions proposed ones that involve more government interference in the market.

We need to break out of this mindset that looks to the government to solve all our problems. It can’t, and it doesn’t – it usually only makes things worse.

In Sydney at least, house prices are high for 2 principle reasons.

1. Government-created “shortage” of land through zoning laws that restrict development to a tiny fraction of the available land;

2. Government-created shortage of labour through immigration restrictions imposed to “protect” the incomes of the low-skilled.

That provides some clues as to how to solve the problem, doesn’t it?

Winston Smith the government has promoted the high house prices by

1. allowing negative gearing on investment property but not your principle residence, thus enabling wannabe capitalists to enter the investment house market

2. allowing people to enter Australia as business migrants provided they invest $500,000 here, this investment can be in the form of housing

If we lived in a world with out government interference, house prices would be lower, wages would be lower, transport costs higher and food, gas, water and electricity prices would be higher.

I doubt there would be as many people owning holiday homes that are vacant for 10 months of the year.

A reduction in house prices might lead to a reversal of the trend to build 3 or 4 bedroom McMansions for a population that increasingly is living in single adult households, about a third of the population and rising.

This article is very bid on ideas but a bit thin on data to back it up. Damian uses the Economist article as his primary reference but that article only compares rents with house prices. Are the rents too low or the prices too high?

House prices are mostly driven by sales of house to owner occupiers whereas rents are mostly based on supply and demand of units. Investor buying is mostly focused on units because of better rental return, easier upkeep, lower Land Tax and higher tax deductions for depreciation.

We should be looking at why people buy real estate before we make generalised comments. There are big tax advantages in owning your own home. It has no CGT, very minor property taxes and the loan repayments are an effective way of making tax free savings.

Australia Capital Gains Tax is relatively high which gives housing an advantage over equities. Perhaps if we lowered the CGT, more people would invest in the stock market and housing would lose its shine.

The investor market is also tax driven. Negative gearing is particularly attractive to those on a high marginal tax rate. Lowering the tax top tax rate would reduce this benefit.

Essentially there isn’t one real estate market. Different groups have different reasons for buying. Making accurate and meaningful observations is a difficult task.

House prices in Sydney are about half those in London and less than most provincial towns in the UK. So I find it difficult to believe that Australia is considered to be less affordable. People I know who move here from the UK cannot get over how cheap everything is - not just housing but food, petrol and most other essentials. Australia really is the lucky country. It is just a shame so many do not realise this.

It has always been a struggle for young couples to buy their first home - in fact previous generations had to manage without the all the luxury items that are now considered essential in order to make repayments. When most first-time buyers genuinely cannot afford houses then the price will necessarily come down. That is how the market works. Investors generally do not buy houses in outer city suburbs where first home buyers traditionally buy. It seems to me that the younger generation (I must be getting old) seem to think they should be able to afford trendy city units with all the mod cons.

Rob88, I thought the CGT on the disposal of a house would be the same as the CGT on the disposal of the equivalent capital gain in equities? That is, at the tax payer's marginal rate. You might want to go back over your past tax returns... And investors are focused on the purchase of units; but then what do you think most first home buyers are trying to purchase, waterfont houses in Mosman? No, the very units they are renting.