Introduction
In an effort to address the housing crisis, Australia has proposed a bold move:
A "Vacant Bedroom Tax"?
If you buy a large house, you’ll pay higher taxes.
Your property's value may even affect your pension!

01: "Vacant Bedroom Tax" Proposal

More Taxes for Larger Homes

To tackle the housing supply and affordability crisis, Australia is ready to roll out a major solution. But for many homeowners, this could be a headache.

A proposal aimed at solving the housing crisis—introducing a “vacant bedroom tax”—has sparked intense debate.

Recent research from Cotality reveals a glaring mismatch in Australia’s housing market: The number of bedrooms and the number of people living in those homes are severely misaligned.

Data shows that over 60% of homes are occupied by only one or two people, while more than 75% of homes are three-bedroom or larger, making them the most common housing type today.

Eliza Owen, the Head of Australian Research at Cotality, said this phenomenon has raised concerns about whether the housing market truly meets the real needs of the people.

On one hand, there are numerous homes sitting vacant, while on the other, countless people are struggling to find affordable housing. The contradiction needs urgent resolution.

Against this backdrop, the "vacant bedroom tax" proposal has been introduced to limit the purchase of large homes.

The core goal of this measure is to encourage homeowners to better utilize housing resources, reduce the vacancy of large homes, and push more properties onto the market to ease the housing shortage.

However, a major issue remains: There is a lack of housing types suited for people looking to downsize. Most newly built homes are designed for growing families, but there are insufficient options for those wanting to "shrink" their living space.

Despite increasing housing density, the "missing middle" in housing options still remains largely unmet.

This means that even with tax policies encouraging people to downsize, there might not be enough suitable properties available in the market.

In addition, Cotality’s research director Tim Lawless pointed out that the report also proposed another tax reform—replacing stamp duty with a smaller, more widespread tax system.

However, this suggestion faces significant challenges.

State governments have long relied on stamp duty and property tax revenues, so eliminating stamp duty without reliable alternative tax sources is almost impossible.

Politically, stamp duty only affects about 5% of property transactions annually, whereas a new tax would likely cover two-thirds of property owners, making the expansion of the tax base a major hurdle.

Though the goal is to solve the housing crisis, taxing homeowners to limit large house purchases is bound to face strong resistance.

02: Property Value to Be Included in Pension Asset Assessment?

In addition to the "vacant bedroom tax," the Australian government has proposed another measure to address the housing crisis.

One proposal suggests "reforming pension asset testing rules" by including the value of family homes in asset assessments.

This measure aims to encourage people to move into homes that better fit their actual needs and reduce the waste of large homes lying empty.

Currently, pensions are subject to both asset and income tests, and exceeding the maximum asset limit disqualifies individuals from receiving the pension. Family homes are not included in the asset calculation.

If property values are included in the calculation, many people will reach the asset limit and may no longer be eligible for government pensions.

For those elderly individuals who might lose pension eligibility due to their home’s high value, the incentive to downsize could be significant.

"Currently, major cities in Australia are starting to build well-located apartments suited for small families. If demand changes through tax reforms, it might further increase the occupancy rate of these new housing options," Owen said.

03: Australia Holds Roundtable on Housing Industry Changes

This week, the Australian government successfully concluded its "Economic Roundtable," focusing on improving productivity, with housing issues taking center stage.

The Labor government's ambitious plan to build 1.2 million new homes between 2024 and 2029 is facing serious challenges. Reports indicate a projected shortfall of over 250,000 homes.

Previously, Prime Minister Anthony Albanese blamed the slow progress of housing construction on "bureaucratic red tape" and over-regulation.

Reports also highlighted that the government is looking into measures to reduce construction costs.

To help achieve its housing goal, Housing Minister Clare O'Neil announced that the implementation of the National Construction Code would be delayed until 2029 to eliminate obstacles and facilitate the construction of the 1.2 million homes.

Meanwhile, Finance Minister Jim Chalmers proposed 10 key work priorities, including accelerating approval speeds for key housing projects, optimizing regulation, utilizing AI technology, simplifying industry processes, and developing a skilled labor force.

As a key organization in the Australian construction industry, Master Builders Australia has stated that these commitments will directly benefit the sector.

Conclusion

Every policy implementation requires a balance of interests.
Housing issues not only affect people's livelihood but also influence social stability and development.

Can Australia find practical solutions and successfully resolve the housing crisis?
We’ll have to wait and see.