Cut the CGT Discount or Cut Immigration?

If you want more people owning their own home, cut incentives for property investors. If you want prices and rents to drop, cut immigration. To achieve both, you have to do both.

They are two separate problems and we need to stop conflating them:

1) Property investors increase demand for properties for sale but increase supply of rental properties (a 'substitute good'). Same number of houses and same number of people - so no effect on overall supply/demand of housing - and little effect on house prices and rents.

Property investors don't push up house prices, they push people out of the housing market and into the rental market. It’s like Coca-Cola and Pepsi - if Coke gets too pricey, people just grab Pepsi instead.

The problem: more people end up having to rent instead of buy their own home.

2) Immigration increases demand for both properties for sale and rental properties. Demand is increasing faster than we can increase supply. So, immigration creates a housing shortage - pushing up house prices and rents.

The problem: Housing becomes unaffordable and more people end up homeless.

Cutting the CGT discount won't bring down house prices as fewer rental properties means the demand from investors will just be replaced by demand from people who were previously renting.

Cutting immigration won’t boost home ownership either, because lower prices benefit both investors and first-time buyers, giving no edge to those trying to enter the market.

To bring down house prices and rents while increasing home ownership, we need to tackle both issues.

In fact, we should go a step further - like many other countries - by increasing taxes on second and subsequent properties to give first-home buyers an advantage.