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.