Academics float idea of resurrecting a 1915 tax
When the federal government says it has “an appetite to be bold and ambitious” on economic reform, the property sector listens closely.
Next week’s high-profile Economic Reform Roundtable will put tax policy under the microscope, and among the more provocative ideas being floated is one that strikes at the heart of Australian household wealth: taxing the family home.
Adding to the mix, Peter Siminski from UTS Sydney and Melbourne University's Roger Wilkins have raised the idea of a resurrected ‘imputed tax’ on the family home.
Supporters of this shift argue that current tax concessions for owner-occupied housing are excessively generous and distort both equity and investment decisions.
Critics – particularly in the mortgage and lending industry – see the proposal as a potential shock to market confidence, property values, and buyer behaviour.
Scale of the Concession
Owner-occupied housing enjoys tax benefits of a size that rivals superannuation.
Treasury estimates that exempting principal residences from capital gains tax costs the budget more than $50 billion a year – far more than the tax benefits granted to investment property.
In addition, there is no tax on the notional rent a homeowner could earn from their property – what economists call ‘imputed rent’ – even though Australia briefly taxed this between 1915 and 1923.
The argument from reform advocates is straightforward: because this housing income is untaxed, it makes high-wealth households look less well-off than they truly are, meaning Australia’s tax and welfare systems are less progressive than they appear.
Inequality and Housing Wealth
Research by academics from the University of Technology Sydney and the University of Melbourne measures the impact of including this non-cash housing income – imputed rent plus unrealised capital gains – when calculating household incomes.
The results are striking: outright homeowners’ incomes are 86% higher than renters when these factors are included, compared with just 34% higher under standard measures.
This shifts Australia’s income inequality ranking from 16th to 10th among OECD countries. In other words, when housing wealth is counted, the gap between homeowners and renters widens considerably.
From a policy perspective, the researchers argue that excluding the family home from the pension assets test means public pensions are less targeted than intended. Wealthy retirees with valuable properties can still access taxpayer-funded benefits, paid for in part by younger workers and renters.
The Market Distortion Argument
Advocates of taxing the family home also contend that the current concessions drive capital into housing instead of more productive investments, such as private business or the share market.
Because income from an owner-occupied property is tax-free, households have an incentive to over-invest in their home – buying bigger, higher-value properties – rather than diversifying into assets that could generate broader economic growth.
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They argue this inflated demand pushes up prices, making entry into the market harder for first-home buyers. While stamp duty is a significant upfront cost, the ongoing tax benefits far outweigh it, adding to demand pressure.
What Reform Could Look Like
While no single model is being pushed, the options discussed by economists include:
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A broad-based land tax applied to all property, replacing or reducing reliance on other taxes
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An explicit housing wealth tax that captures the family home in the same way as other assets
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Including the principal residence in the pension assets test, tightening eligibility for wealthy retirees
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A broader net wealth tax covering property, shares, and other assets.
Some advocates suggest these measures could be combined with income tax cuts to offset the impact, arguing that many households – particularly renters and owners of modest homes – could end up better off.
Why Mortgage Professionals Should Be Concerned
For the housing finance industry, these proposals would fundamentally change the risk-reward profile of home ownership. Buyers calculate affordability not just on repayments but also on the assumption that capital gains will be tax-free.
Introducing a tax could:
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Reduce the incentive to upgrade or relocate, leading to ‘locked-in’ households and lower transaction volumes
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Subdue price growth, altering refinancing behaviour and equity-release strategies
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Weaken confidence among both first-home buyers and existing owners considering new loans
Layered on top of other debates – such as the Australian Council of Trade Unions’ call to limit negative gearing and capital gains tax concessions to just one investment property per owner – the message is clear: long-standing property tax settings are firmly in the reform spotlight.
Mortgage brokers, lenders, and advisers will need to track these conversations closely.
Even if the politics make such reforms unlikely in the short term, the discussion alone can influence sentiment, dampen buyer urgency, and reshape client expectations about the future value of their most important asset.
