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Housing belongs in the inequality story

Housing is crucial to economic wellbeing, yet it is still often ignored or treated incompletely in the analysis of income inequality. In our new research, we argue that this omission creates a distorted picture of the levels and trends of inequality in Australia.

Owner-occupied housing delivers two major economic benefits: imputed rent (the rental value that owner-occupiers receive by living in their own home) and capital gains that accrue as housing values rise. Neither is usually included in standard measures of household income, and neither is taxed in Australia. Our results show that this matters a great deal for how we understand inequality and redistribution.

While equivalised disposable household income remains a useful benchmark for inequality analysis, it is incomplete. By adopting a broad Haig-Simons concept of income—defined as consumption plus change in net wealth—it is clear that both imputed rent and accrued capital gains from owner-occupied housing belong in the income measure. This is not just a conceptual point. In an economy like Australia’s, where housing has appreciated strongly over a long period and owner-occupied housing receives concessional treatment in both the tax and transfer systems, excluding these forms of housing income can substantially distort our picture of inequality.

The importance of a long-run perspective

A key contribution of our study is the focus on long-run income, rather than relying solely on annual snapshots. This matters because housing-related income is volatile from year to year, and annual measures are heavily influenced by life-cycle factors. Older Australians, for example, often have relatively low cash incomes but high housing incomes because they own their homes outright. Looking only at annual income can therefore make imputed rent appear equalising. However, when we take a longer-run perspective, that result reverses.

To examine income from owner-occupied housing, we constructed new measures of imputed rent and accrued capital gains using HILDA data from 2001 to 2023, combined with external data sources including the national accounts, the ABS Survey of Income and Housing, Reserve Bank mortgage rate data and CoreLogic hedonic housing price indices. We also improved on simpler methods used in earlier work. For example, we found that the median net return from imputed rent is around 2% in most years, far below the 5% assumption built into some commonly used measures. We also showed that annual capital gains are extremely volatile, so we developed a preferred smoothed measure that preserves differences across households while avoiding excessive year-to-year instability.

Striking findings on inequality

The substantive findings are striking. Including housing income shifts people within the income distribution by an average of 8 to 9 percentiles. Using standard disposable income, the mean income for outright homeowners is 34% higher than for renters, but 86% higher once housing income is included.

Over a 23-year horizon, adding imputed rent and capital gains raises the Gini coefficient by 0.02, or 7.9%. To give a sense of scale, that is roughly equivalent to shifting Australia from the 16th most unequal OECD country to the 10th most unequal. Housing income also tends to amplify the apparent increase in inequality over time, especially when looking at medium-run measures such as five-year income.

The inclusion of housing income also reshapes the demographic profile of poverty and affluence. Renters appear much more disadvantaged once housing income is counted. On annual disposable income, 15.6% of renters are in the bottom decile, compared with 7.5% of owner-occupiers. Once housing income is included, the gap widens dramatically: 24% of renters are in the bottom decile, compared with just 3.9% of owner-occupiers. At the top of the distribution, owner-occupiers are already more likely than renters to appear rich, but the disparity becomes much larger when housing income is factored in. The age profile also changes: housing income tends to lower measured poverty among older outright owners, while raising the relative poverty risk of younger households and children, who are much less likely to benefit from owner-occupied housing.

Implications for tax and transfer policy

Perhaps the most important implication concerns the tax and transfer system. Because imputed rent and accrued capital gains on owner-occupied housing remain untaxed, including them in the income base reveals a system that looks far less redistributive than standard measures suggest. On our long-run measure of income, the redistributive impact of income tax drops by about 40% when housing income is included. The redistributive effect of transfers falls by 18.9%, and the combined redistributive impact of taxes and transfers falls by 26.7%. In annual data, the same pattern appears: the measured redistributive impact of income tax is, on average, 36% smaller once housing income is taken into account.

The concessional treatment of owner-occupied housing materially weakens the redistributive role of taxes and transfers. In effect, a large and growing source of economic advantage sits outside the state’s main redistributive architecture. That should matter deeply for tax policy debates. We are not claiming that housing income should automatically be taxed in full, nor that measurement challenges disappear once a broader income concept is adopted. But if we want a more accurate account of inequality and redistribution in Australia, housing cannot remain offstage.

Conclusion

Housing is not just a backdrop to inequality: it is one of its central mechanisms. In countries like Australia, where owner-occupation is widespread but increasingly unequal, and where house prices have risen dramatically over time, omitting housing income provides an incomplete, and in some respects misleading picture of who is rich, who is poor, and how redistributive the fiscal system truly is.

 

Citation:
Wilkins, Roger & Siminski, Peter, (2026), Housing Belongs in the Inequality Story, Austaxpolicy: Tax and Transfer Policy Blog, 10 April 2026, Available from: https://www.austaxpolicy.com/housing-belongs-in-the-inequality-story/

 

This article was originally published on the Austaxpolicy blog, established by The Tax and Transfer Policy Institute, and is reproduced with permission.

Roger Wilkins is a Deputy Director of the Melbourne Institute of Applied Economic and Social Research as well as being a Deputy Director (Research) of the HILDA Survey program area.

Professor Peter Siminski is an applied microeconomist with over 20 years of policy-oriented research experience.

 

  •   6 May 2026
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11 Comments
Errol
May 07, 2026

Yet another academic article devoid of worked examples and ignoring variables that don’t suit the authors conclusions. Inequality? It’s the supply side that is the problem and Government’s failure to plan.

5
James#
May 07, 2026

Imputed rent is a silly socialist economist construct. They’d love to tax it as income forgone. Paying off a mortgage over 30 years should be enough! Much like the utter nonsense that if you get to keep a dollar earned, it’s somehow a cost to the government or a too generous concession. What next, a tax on air?

5
Sven
May 07, 2026

The Australian housing story has left Australia short of capital for nation building projects as individuals have scrambled to over allocate capital to a tax free overvalued housing story. The system in Australia should change to allow tax deductibility on home mortgages and tax the real gains on homes (actual minus inflation) less a tax free hurdle of say $500,000. The change in the tax law should include a sunset date not a grandfathering clause as this will help solve the current supply imbalance in housing. Freed up capital from Australian taxpayers should then be incentivized into nation building projects that include a federal government guarantee. These projects should be for energy, road, rail, water and telecommunications. And these investments would require a minimum IRR and a guaranteed return to investors which would include an income & equity component.

3
OldbutSane
May 07, 2026

If mortgage interest is deductible and you give a tax free hurdle (is this the first $500k in gains or property sale or purchase price - it makes a big difference!), then this is simply unfair and makes the inequality worse! (Particularly if you mean the first $500k in gains.)

Also, I don't understand why some replies has said that if the gain is taxable, that the interest on the mortgage must be deductible when you are not also suggesting that rent paid should be deductible. The interest on the mortgage is effectively a substitute for rent, but you are getting the advantage of an appreciating asset, so there is no need for mortgage interest to be deductible if you tax the gain (inflation adjusted of course).

2
Cameron
May 07, 2026

I really want an opportunity to invest in Snowy Hydro 2.0

Andrew Smith
May 07, 2026

Yes, and most don't realise this maybe a one off moment due to demographics with high fertility silent generations, through boomer 'bomb' and partly Gen X increasing longevity and holding houses longer, hence, relatively less turnover, for now....

Signals were apparent before Covid, anecdotally on softening house prices, while Cotality showed that 2014-24 no capital city median price had doubled within that decade, signifies stagnation of median house values; converelt Melbour e with population growth too, is one of the most affordable?

One can purchase a house now, but chances are, with boomer 'bomb' transitioning, most houses bought will start losing value immediately.

Cam
May 07, 2026

Housing inequality is massive. I read something recently, I think on Firstlinks, saying the average house in Sydney will increase in value by $1m more than the average across Australia over the next 25 years. That's driven by higher wages for the same work.
My parents and my wife's parents bought their home around 1970 for close to the same amount. My parents in Sydney now have a $2.5m home while my in laws in a large regional town have a home worth $600k. Both get a similar age pension. My parents started with more, due to the higher wages for the same work, which they spent on a number of overseas holidays.
My parents have massively more capacity to reverse mortgage for health or holidays. Me and my siblings get a much greater inheritance than my wife and her siblings.

1
Rod
May 07, 2026

The concept of home ownership giving the owner a rent free advantage should not be limited to only houses.
If you own a car then it also should also be classed as capital asset giving the owner a rent free advantage with rental for an equivalent hire car hire imputed as tax assessable revenue to the owner.
Of course a car only looses value so no one will see this as being a valid comparison, no money to be made or transferred here.
Returning to the housing real estate as an investment for homeowners.
Capital gains tax on housing with partnering with mortgage costs tax deductible will make the banks really happy, be windfall for them. This could make the overpriced housing sector more affordable encouraging further increased house prices. Good for Government as on sale time increased Cap Gains revenue.
Remember housing has already been taxed GST on the land development costs and the services required by councils, then include home construction GST costs on all materials and labor.

We have councils and government departments providing property and land values which are used to calculate local government revenue. As valuations are linked to retail sale prices so could there be a conflict of interests here.
So if government policies create a buyer competition this has the effect of increasing prices it will be a win tax wise for both local and federal govt.
The real world reality is its using inflation as a justification for transfer of wealth to a younger generation.
Taxing inflation is never a way to prosperity.
Given the track record of honesty by governments of any name does the younger generation genuinely think they will be receiving this inflation money.
Do the homework and think how many retirees can afford to be assessed on the rental value.

Richard Lyon
May 07, 2026

Very interesting concept. Of course, any imputed rent must also appear in the housing COSTS for owner-occupiers. This will push up the measured average cost of housing. And it will give those with a mortgage a very high housing-cost-to-income ratio.

Including increases in the values of homes is problematic, however. The HILDA income definition excludes capital gains (whether realised or unrealised). That is clearly a weakness, but it is not fixed by the selective inclusion of the growth in value of owner-occupied housing.

Paul
May 08, 2026

I think it is fair to say capital city house prices in Australia are very high relative to wages and our tax and transfer system is strongly biased towards home owners. I wouldn’t fancy living on the age pension and even a modest super balance while renting in Sydney.

How to correct this is much tougher.

Do you provide less government assistance to those living in expensive homes perhaps by including the home value above a certain point in the income and assets test? Do you provide greater government assistance to non home owners who are not working or maybe even on the minimum wage? Big cuts to migration but who will do all the jobs Australians don’t want to do. Land tax on all land might encourage the most efficient use of land. Maybe loosen development guidelines. Cut government assistance to home buyers. CGT on the family home? The politics of any of these proposals are wicked.

 

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