Wait, What? Taxing Me for Living in My Own Home? The Economist Fantasy That Would Punish Ordinary Australians — Why It’s a Terrible Idea

Homeownership
Written By Shirley Druyeh

Why an Imputed Rent Tax in Australia Would Be Harsher

This debate over an imputed rent tax in Australia raises a simple but crucial question: should homeowners be taxed for living in their own home?

House prices across Australia are rising again — in Sydney, Melbourne, Brisbane, Darwin, and beyond. But wages? Not so much. We’ve become a nation of people who are asset rich but cash poor. For most Australians, the home they live in is their biggest asset, and the whole point of buying it is to have security later in life.

Now, some economists want to tax you for the privilege of living in that home — even if you’re still paying it off. They call it “imputed rent.” I call it a war on the middle class.

What Imputed Rent Means in Plain English

Imputed rent is the theoretical rental value of your home — what you could charge if you rented it out. Economists argue that because you live in it yourself, you’re effectively “earning” that amount in untaxed benefit, and the government should tax it like income.

Example:
If your home could rent for $750/week, that’s $39,000/year in “imputed rent.” Under this idea, you’d pay income tax as if you actually received that money — even if your mortgage repayments are higher than rent.

Why This Would Be Harsher in Australia

Countries that tax imputed rent — like Switzerland, the Netherlands, Denmark, and Greece — usually allow homeowners to deduct mortgage interest from their taxable income. That means the cost of financing your home reduces the tax hit.

Australia does the opposite:

  • Landlords can deduct mortgage interest because it’s a cost of generating taxable rental income.

  • Owner-occupiers can’t deduct mortgage interest at all.

If we introduced imputed rent tax without also introducing mortgage interest relief, Australians would be taxed on a “housing benefit” they never see in cash — while still paying every cent of their interest to the bank.

The Numbers for an Average Sydney Homeowner

Let’s use a fictional example to keep this neutral:

  • Gross (before tax) salary: $94,000/year — the most recent Australian Bureau of Statistics (ABS) figure for average full-time adult earnings

  • Median Sydney house rent: $750/week = $39,000/year (imputed rent)

  • Mortgage repayments: $5,000/month = $60,000/year

  • Interest portion: ~$45,000/year — based on a $750,000 mortgage at 6% interest

Scenario 1 – No Interest Deduction (Australia’s rules now)

  • Taxable income = $94,000 + $39,000 = $133,000

  • Extra tax: ~$12,500/year

  • Housing cost = $60,000 mortgage + $12,500 tax = $72,500/year

Scenario 2 – With Interest Deduction (Switzerland-style)

  • Taxable income = $94,000 + $39,000 − $45,000 = $88,000

  • You’d actually pay slightly less tax until your mortgage is smaller.

Without interest deduction, you’re punished. With it, you’re cushioned. This shows how mortgage stress and housing affordability collide if imputed rent were introduced.

Impact on Pensioners and Retirees

This policy would hit retirees hardest. The whole point of paying off your home is so you can live rent-free in old age. Under an imputed rent tax, once your mortgage is gone, your “housing benefit” is at its peak — and so is your tax bill.

Example:

  • Paid-off home worth $900,000, rental value $750/week = $39,000/year.

  • That $39,000 would be added to your taxable income.

  • For many, it could reduce or wipe out the Age Pension and create a tax bill — without a cent in extra income.

It could force older Australians to sell, downsize, or take out equity loans just to pay the tax — the exact opposite of the stability homeownership is supposed to provide.

Impact on Single Parents and Solo Homeowners

Single parents and solo homeowners would be disproportionately hit by an imputed rent tax. Why?

  • One income means you carry 100% of the mortgage, rates, insurance, and maintenance costs alone.

  • You don’t get the “cost sharing” that couples benefit from, so the extra tax would be an even bigger percentage of your disposable income.

  • For single parents, childcare and living costs already eat a huge share of earnings. Adding another $10–12k in tax could make staying in the home impossible.

These are the households that already face the steepest climb to buy — they shouldn’t be punished again for managing to get there.

Not Just a Sydney Problem

Yes, Sydney’s prices are extreme, but this is happening everywhere. Brisbane, Darwin, Adelaide — all have seen sharp property price rises, while incomes have lagged. Even in cheaper markets, imputed rent would still be calculated on current market rent, meaning your tax bill could jump regardless of your mortgage status or local wage levels.

This is a country where people stretch themselves to buy a modest home to avoid the insecure, expensive rental market. And in many regional areas, “affordable” apartments still come with steep strata fees — another ongoing cost that pensioners have to somehow find money for. This isn’t just about Sydney — it’s about housing tax reform in Australia and the middle class being squeezed nationwide

What Needs Fixing Instead

1. Target speculative flipping and multiple investment properties
Short-term speculative flipping — buying a property, holding it briefly, then selling for profit — pushes prices up without adding meaningful housing supply. It treats homes as poker chips, not shelter.

  • Heavier taxes on properties sold within 2–3 years of purchase would reduce this churn.

  • Apply higher rates of land tax on third, fourth, or holiday homes owned purely as investments, to shift focus back to housing as a basic need, not just a financial asset.

2. Overhaul how property is sold and marketed
Australia’s current sales and rental practices fuel insecurity, desperation, and inflated prices. Here’s how the UK does it differently — and why it matters:

  • Ban “Price on Application” (POA) and vague price guides:
    In the UK, “Price on Application” has been effectively banned under consumer protection laws, with real estate listings required to include a clear asking price. The National Trading Standards Estate Agents Team and the Competition and Markets Authority have both flagged POA as misleading because it withholds crucial price information and distorts buyer decision-making.

  • Mandatory vendor-supplied property reports:
    UK sellers must provide a Property Information Form (TA6) before sale, detailing the property’s structural condition, disputes, planning history, environmental risks, and more. Omitting known issues can result in legal or financial penalties. This level of upfront transparency is far stronger than what’s required in Australia, where major problems often only surface after contracts are signed.

  • Reform auctions:
    In the UK, auctions are a niche sales method, typically reserved for distressed properties, repossessions, unusual homes, or those needing major renovation. Most residential properties are sold via private treaty with a clear asking price or a negotiable guide.

    In Australia — particularly in Sydney and Melbourne — auctions are often the default method for selling even standard homes in desirable areas. This heavy reliance fuels competitive bidding, emotional overspending, and inflated prices, turning the purchase of a home into a high-stakes gamble. By reducing the role of auctions and expanding transparent fixed-price sales, we could take the heat out of the market and protect buyers from being manipulated by scarcity tactics.

Why this matters
These reforms focus on curbing speculative behaviour and making the property market fairer and more transparent — without punishing middle-class Australians who simply want one home to live in. They protect buyers from being manipulated into overpaying, ensure they have accurate information before committing, and keep the pressure on those driving market distortion rather than those just trying to keep a roof over their head.

Bottom line: Homeownership in Australia is already expensive, insecure, and burdened by ongoing costs. Taxing imputed rent here would be worse than in almost any other country — because our system offers no relief for the cost of buying and keeping a home. The focus should be on fixing what’s broken in the property market, not inventing new ways to punish the people who are playing by the rules. The debate over an imputed rent tax in Australia is really about fairness: should homeowners be taxed for living in their own home when mortgage stress and affordability already dominate people’s lives?

Books & Resources That Helped Me Rewire My Financial Thinking

Here are a few books that really helped me shift my mindset and understand money in a healthier, more empowering way:

You can also find more resources and books on my blog, including tools I’ve used personally.

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Disclaimer: This blog post is for general informational purposes only and does not constitute personal financial, legal, or investment advice. The insights provided reflect the author’s personal perspective as a property owner and Quantity Surveyor, and are not tailored to your individual circumstances. You should seek independent, licensed advice before making any financial or property-related decisions.

Shirley Druyeh
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