New government should give homeowners a tax break
Category From Our CEO
Whichever political parties end up governing the country in coalition for the next five years, they should focus on helping as many South Africans as possible to buy and keep their own homes, because this is one of the best ways to boost economic growth, create employment and reduce wealth inequality.
And to this end, they should give all home buyers and owners an annual tax break, such as the bond interest deduction already available to those who own rental properties.
This would immediately make homeownership more affordable and attractive across the whole income spectrum, and not just for those first-time buyers who are eligible for the First Home Finance subsidy. It would also help many existing homeowners who are currently battling with high interest rates to avoid having their properties repossessed, which has a negative effect on the economy and on investor confidence.
In short, a tax break would quickly result in a more active real estate sector, which has the potential to make a huge contribution to the GDP growth and job creation that SA needs so urgently.
Increased housing demand stimulates the development of new homes and boosts economic output starting with the investment in land and building materials even before the new homes are purchased. It also prevents steep declines in home values and the associated negative economic impacts.
Many studies have also shown that jobs are not only created during the construction of new homes but also on an ongoing basis as homeowners continue to buy home-related goods and services. Homebuyers spend on furniture, appliances, home improvements, security, maintenance and various services, which boosts demand in a wide variety of economic sectors other than real estate and construction.
In SA, the State also collects VAT on the sales of newly-built homes and transfer duty on the purchase of pre-owned properties, so more home sales mean more revenue. Local governments also earn more when there are more residents paying property tax and this additional revenue can be used to improve public services and infrastructure and further stimulate economic activity.
Homeowners have also been shown to be more likely than tenants to invest in their local communities, support local businesses and contribute to the overall stability, upliftment and security of the areas in which they live, thereby making these more attractive for further investment, development and job creation.
Homeownership can also enable people to access and keep jobs in their own areas more easily, because they don't have to contend with rental increases that could force them to move to a less expensive property further away.
Also of especial importance in SA is the fact that homeownership is the primary way for lower- and middle-income families to build wealth, not only through the increase in the value of their homes over time, but often also through the use of their homes as places to start new business enterprises. A tax incentive that encourages and enables such families to achieve homeownership could thus be an important key to reducing SA's high level of wealth inequality.
Consequently, we believe that although housing was an issue that received too little attention in the recent elections, any new government should institute a tax break on homeownership as soon as possible, because the initial reduction in revenue would rapidly be offset and exceeded by the proceeds of more robust economic growth, employment creation and consumer spending.
Author: Berry Everitt