'csteele', the reason I suggested that the revenue gains from abolishing negative gearing be applied to reducing marginal income tax rates is simply out of fidelity to what I've long believed (almost as long as I've believed that grants to first home buyers are a waste of public funds) is a good principle of tax reform - ie that the trade-off between a broader tax base (ie, fewer exemptions and concessions in the definition of what is taxed) and lower rates always improves simplicity, equity, economic efficiency (ie, 'neutrality' as between choices made on grounds other than their tax consequences) and compliance costs.

However I agree with you entirely that whatever money governments choose to spend on housing is much better spent on increasing the supply of it, especially for those who might otherwise not be able to afford it, rather than on inflating the demand for it, especially from those who can afford it themselves. As I pointed out in my original article, the historical evidence is that this approach actually works.

Australia has a chronic shortage of housing - equivalent to 200,000 units as at 30 June last year, according to the National Housing Supply Council (of which I'm a member). And on present trends and policy settings, that figure will more than double over the next seven years. The result will, inevitably, be declining rates of home ownership among middle-income families; increasing rates of rental housing stress, and homelessness, among lower-income families; and increasing poverty among older families who are exposed to the private rental market whilst on fixed incomes.

And yet is government policy changing in response? Not a whiff.

SE>>Australia has a chronic shortage of housing - equivalent to 200,000 units as at 30 June last year, according to the National Housing Supply Council

It is my understanding that these numbers include groups such as 'the homeless', of which many choose to be and under normal circumstances will never own a home. Is this the case?

Now as for negative gearing, you can't take away NG and leave capital gains tax.

Property investment is simply another form of investment and, if you take away the 'tax advantages', who will buy the properties that are out there being rented by the thousands who will never own a home, many of them by choice.

Is there an actual 'shortage of houses' Saul Eslake, or is it a shortage of houses that people can afford?
I can't help but wonder if much of the problem is that government policy is directed towards the mythical 'average wage', which is around $30k more than what 50% of Australians make.
The median wage is still around $40k. A $200k loan at 3%, over a 30 year period would involve repayments of $843. a month, which is very close to 25% of a single median income; in other words, actually affordable to a young family with a young mother staying at home to look after her children.
Where could one buy such a cheap house? Certainly not in the cities or suburbs, but hey, we are in one of the most underpopulated countries on Earth. There is still plenty of space out there, and decentralisation can only be a good thing, for many reasons.
Concrete slab construction opens the opportunity for (cyclone and even flood proof) houses to be prefabricated, and built in days instead of weeks.
Yes I realise such concepts would require what is these days described as 'a paradigm shift' in thinking; what in other times was merely described as 'imaginative'.
When did we get so conservative? And why?
More to the point, why is it that 50% of Australians are constantly ignored?
With the 2 major parties crowding the neo liberal centre, and the only other player concerned more with environmental issues than human ones, perhaps it is time for another political party.
I would suggest it be called 'The Real Australian Labour Party'.

Dear Saul,

While we might be in furious agreement about negative gearing I'm afraid our views may well diverge on other aspects of the taxation/welfare system.

I have always been of the opinion that economic efficiency and simplicity should only be applied to the means of achieving social policy, not directing it nor decreeing what is worthy.

Be that as it may I want to thank you for responding to my posts. I hope that the the size of the negative gearing dragon doesn't put you off occasionally tilting your lance in its direction.