Matthew Bowes

2) The more successful our broader housing policy reforms are at lifting supply, and hence lowering real growth in house prices (an important goal), the less we would raise by shifting from our current flat 50% deduction back to CPI indexation.

Two policy implications to highlight:
1) If we assume inflation of around 2.5% and asset price growth of around 5-7% per year, then for most people, indexation is less generous than our current 50% discount, but more generous than a 25% discount.

This is where some of the recent media reporting on this issue trips up: because it confuses indexation of the cost base with the size of the discount, it implies that the longer you hold an asset the larger your discount. Whereas in many instances, the opposite is true.

By way of example, if you have 2.5% CPI and 5% asset price growth per year, then after 1 year the discount on your gains is 50% - the same as our current discount. But over time the difference between those growth rates compounds, so after 10 years the discount is just 45%.

In the above example, the taxable gain is the same either way. But in reality, how much of a discount the indexation approach provides will depend upon inflation and asset prices. Faster inflation or slower price appreciation means a bigger effective discount on your gains.

Under the inflation indexation approach, you instead grow your cost base with the growth in CPI over the period since your purchase, and then subtract this inflated cost base from the sale price to calculate your taxable gain. See a stylised example above.

When you're taxed on capital gains - whether it's a house or another asset - you're being taxed on the difference between your cost base (mostly the purchase price) and your sale price. Under our current system, we apply a 50 per cent discount to this gain before taxing it.

With the federal budget approaching and speculation again mounting over capital gains tax reform, there's been some discussion about returning to the pre-99 'inflation indexation' approach to taxing capital gains. Here's a quick explainer on how that would work.

While changes to transparency rules from 1 July will help shed light on more donations, there's still more work to do. The expenditure caps for parties are still too high, and are designed in such a way that they advantage incumbents and major parties. 5/

But the picture we have from this data is only partial. More than $140m - 30% of party receipts in 2024-25 - were undisclosed. 4/

The biggest donors to the major parties included party investment funds such as Labor Holdings and the Cormack Foundation, alongside the philanthropist Pam Wall, and unions such as the Mining and Energy Union. 3/

Clive Palmer's Mineralogy was the largest single donor over the period, with over $50m going to the Trumpet of Patriots party - less than his record donations in 2019 and 2022. Coming in a distant second was Climate 200, with around $6.6m in donations to various independents. 2/

Among the two major parties, the Coalition again had a fundraising lead over the ALP last election cycle, as it has at every election since 2007. 1/

Election 2025: Where the money came from - Grattan Institute New data underscore the need to improve the rules about money in politics.

How did Australia's political parties finance their 2025 election campaigns? In our latest piece for the Conversation, Kate Griffiths and I dig into the recently released party returns data to find out. 🧵

New data show where the parties got their money from in the lead-up to the 2025 election

Huge amounts of money flowed into the coffers of Australian political parties in the lead up to the most recent federal election. Here’s who gave the most.

First reaction: this is an incredibly brave response in the face of some pretty blatant political thuggery.
Second reaction: if I had a nickel for every time a historic reserve bank office building turned out to be a pain to refurbish…

New year and new article out in @ausjpolsci.bsky.social with Mark Chou, Rachel Busbridge & Luke Dean: Mapping the ‘fringe’ in Australian local politics

We provide the first systematic analysis of fringe candidates in the 2024 NSW & VIC local government elections. 🧵

The 30% rule is a particularly poor metric if used to assess housing outcomes for those on higher incomes. Wealthier folk who pay more than 30% of their income in rent are likely not housing stressed, but they could still benefit from better located or higher quality housing.

Just one example: if I currently pay 35% of my income on rent but live a 10-minute walk from work and my kid’s school, that may make me better off than having to commute in a car for hours every day to live in a house that rents for just 28% of my income.

Among the issues the PC highlights:
- 30% is an arbitrary cut-off point
- it’s not a good predictor of self-reported financial stress
- it doesn’t capture trade-offs that people make to reduce housing costs, such as with housing quality and location.

As is often the case, there’s a great discussion of the issues with the 30% rule buried in a Productivity Commission report - in this case Chapter 9 of their 2022 report into the National Housing and Homelessness agreement. www.pc.gov.au/inquir...

There’s a few arguments I disagree with in this op-ed from Kate Shaw, but one point I wish housing experts of all stripes could agree on is that a ‘30% of income’ benchmark is a poor metric of housing stress - or the functioning of our housing market.

Should US homebuilders emulate Sweden? A common sentiment I see with folks interested in improving US homebuilding is that we should try and emulate Sweden.

Link:

Good article here from Brian Potter on why Sweden’s much-commented-upon high rates of prefabrication in housing construction haven’t necessarily led to lower construction costs. Link in next post.

0:23 History 7:20 What We Know 10:32 Theory 15:00 Over Explained 19:45 Who Benefits? There is a ton of confusion–and a fair amount of debate–over what happens to property values when you upzone. Does allowing more housing through upzoning drive prices down or does it drive up housing costs? It’s a The High Cost of "Low-Density" Zoning

I’ll cheat slightly by rounding things out with this video essay from Justine Underhill, which does a great job of explaining some complex ideas in housing economics, without skipping the details. 7/

Among the fiction I read this year, I had a particularly great time with Tamsyn Muir’s ‘The Locked Tomb’ trilogy. Three supremely entertaining, suspenseful, and unpredictable fantasy/sci-fi novels. 6/

This political science paper on angry swifties and ticketing regulation has it all. An interesting topic, compelling theory, and a great natural experiment at the heart of it. 5/
www.journals.uchicag...

The Folk Economics of Housing (Summer 2025) - Why is housing supply so severely restricted in US cities and suburbs? Urban economists offer two primary hypotheses: homeowner self-interest and political fragmentation. Homeowners, who outnumber and have organizational advantages over renters, are said to lobby against development to protect their property values. The fragmentation hypothesis emphasizes that development's negative externalities are borne locally while most of the benefits accrue regionally or nationally, leading localities to block housing. This paper offers another explanation: ordinary people simply do not believe that adding more housing to the regional stock would reduce housing prices. Across three original surveys of urban and suburban residents, only a minority of respondents say that a large, positive, regional housing supply shock would reduce prices or rents. These beliefs are weakly held and unstable (suggesting people have given the issue little thought), but respondents do have stable views about who is to blame for high housing prices: developers and landlords. Large, bipartisan supermajorities support price controls, demand subsidies, and restrictions on putative bad actors, policies which they believe would be more effective than supply liberalization for widespread affordability. We discuss the implications of these findings for efforts to expand the supply of housing.

‘The Folk Economics of Housing’ changed how I thought about housing politics. While policymakers underestimate the public’s desire for action on housing affordability, the public often does not buy the idea that market supply will achieve that goal. 4/

Giving people money helped less than I thought it would Ending the war on poverty will take more than cash transfers

There’s been some great essays published in ‘The Argument’, but I particularly enjoyed this piece by Kelsey Piper on why giving people money isn’t always the silver bullet we might hope for. 3/

Quinn Slobodian’s ‘Hayek’s Bastards’ surprised me. I didn’t always agree with its understanding of ‘neoliberal’ economics, but it was nonetheless a thought-provoking recent history of some of the far right’s most influential philosophers and policy thinkers. 2/