Few myths run deeper in Australia than the belief that owning a house on a “quarter-acre block” guarantees wealth and security. Politicians defend it, banks sell it and many Australians treat it as the ultimate life goal. Social norms cast homeowners as responsible citizens: mortgages enforce financial discipline. Renters remain second-class, with less secure tenure, weak bargaining power and taxes that subsidise owners’ capital gains. Unlike other assets, an owner-occupied home attracts no capital gains tax (CGT). Tenants face insecure rentals and eviction under varying rules; owners rarely do.

But behind glossy real estate ads and record prices lies an uncomfortable truth: our homeownership obsession fuels debt, misallocates capital and restricts social mobility. The “Australian Dream” has become a wealth pump from workers to banks and multi-property owners. High prices mean big loans and steady profits. Tax perks like negative gearing, CGT discounts and first-home buyer grants persist, even as ownership declines. Public funds prop up an illusion of stability while liveability and productivity decline.

Worse, ballooning debt suppresses innovation and democracy. When a mortgage drains income, people think twice before starting a business or resisting injustice.

Australia’s investment in its future already lags. We spend just 1.68 per cent of GDP on research and development, far below the OECD average (2.7 per cent) and the US (3.5 per cent). Much private wealth sits idle in suburbia instead of funding innovation or clean energy. The environmental toll is clear. Urban sprawl, fuelled by CGT discounts, rigid zoning and car-centric planning, entrenches inequality and drives up emissions.

At its core, housing is a human right, not a speculative asset. Commodifying a public good creates scarcity and inequality by design. A coordinated shift in tax policy, investment access and rental security can offer a fairer alternative. With the Treasurer considering CGT reforms to cool property speculation, now is the time for change.

One bold proposal is to incentivise sovereign investment and secure rentals as an alternative path to shared prosperity, complementing homeownership and superannuation. These ideas should be on the agenda as the Commonwealth Government convenes its Economic Reform Roundtable in Canberra in August, where productivity is a focus.

The problem with homeownership

Most Australians pour their life savings into a house, believing it to be the safest bet. Owner-occupied homes make up two-thirds of household net worth (66.6 per cent), dwarfing superannuation (24 per cent) and shares (9 per cent). Globally, this is unusual: Sweden and the Netherlands favour diversified portfolios, while Germany and Switzerland combine rental protections with high building standards.

Canada offers a cautionary tale for Australia. Both face severe affordability crises, with similar legal systems, liberal financial markets, sparsely populated vast landmasses and policies that commodify housing. Homelessness in cities like Vancouver has surged 32 per cent in three years. Zoning restrictions and NIMBY resistance choke supply, while cheap credit fuels a vicious cycle of rising property prices and household debt.

Piecemeal fixes such as first-home buyer grants, foreign ownership bans or scapegoating international students (just 4 per cent of Australian rentals) are politically convenient but miss the point: under-supply benefits owners. Real change, as Auckland’s “upzoning” shows, means confronting the political economy of housing.

Banks are the biggest winners. Australia’s big four banks earn half their profits from a $2 trillion mortgage book. Homeownership signals status but often means decades of debt, while wages have lagged far behind property prices for decades.

Financially, this makes little sense. A house is a depreciating structure that requires ongoing repairs, insurance and rates. The real gains come from land appreciation, mainly due to artificial scarcity created by restrictive planning and tax incentives. The State of the Housing System 2025 forecasts a shortfall of 262,000 homes. The Housing Accord aims to boost supply, however planning regulations, labour shortages and insufficient incentives remain major barriers.

By contrast, well-diversified global index funds such as the FTSE All-World Index return 7-9 per cent annually, far exceeding housing’s real 2-3 per cent gain after costs. Over decades, this compounds significantly. A renter with secure tenure who invests steadily in index funds will likely accumulate far more wealth than a mortgage-bound homeowner.

Shifting household savings from static property assets into diversified investments could strengthen national productivity. While global diversification spreads risk, targeted tax incentives for local equities could amplify domestic growth while preserving investor choice.

Unlike a house, an index fund moves with you. Funds can be adjusted as life changes. New job interstate? Local school not right? Highway or factory planned next door? Strata votes for a gold-plated garage? Index funds offer mobility.

Most importantly, index investing requires no debt. Low-cost exchange-traded funds let people build wealth step by step, with regular contributions in a liquid, balanced portfolio. No stamp duty. No mortgage stress. No surprise repairs. No compulsory acquisition. Just a slice of the economy.

In short: owner-occupied homes are consumption goods propped up by tax breaks and social norms. Index funds are a more flexible alternative. Yet our tax system channels billions into property speculation while offering renters little support. If we want shared prosperity, that must change.

Policies for sovereign investment and secure rentals

Other countries show that better models work. Norway’s sovereign wealth fund, now worth over A$2.8 trillion or about $A500,000 per citizen, invests oil royalties globally, sustaining national wealth long after the fossil fuel era. Norwegians enjoy world-class public services and economic stability. In Alaska, residents receive annual dividends from state oil revenues, a simple recognition that natural resources belong to all.

Australia does the opposite. Its resource tax regime, unchanged for 20 years, charges extractive giants comparatively little while households shoulder one of the world’s highest private debt burdens. Of $91 billion in gas exports, Australia collects just $2.6 billion in tax, far below Qatar ($76 billion) and Norway ($134 billion). The UK raised oil and gas taxes from 40 to 75 per cent, with support even from conservative parties. Wealth flows up while younger Australians borrow ever more, often from parents, just to live securely.

Index investing flips this script. Low-cost index funds can be just as attractive, if not more so, than housing debt. But change requires coordinated policy across all levels of government. The Commonwealth must lead on tax, superannuation and investment incentives. States regulate housing, rentals and planning. Councils control land use and can enable cooperative projects.

The proposed program of coordinated reform includes nine recommendations across policy areas including tax, sovereign wealth management, finance, tenancy laws and education.

These reforms offer a fairer, more flexible path to prosperity without penalising homeownership. They also aim to contain the cost of renting, so Australians can spare more of their income to invest in index funds.

1. Enable tax-deductible contributions to approved index funds: Alongside superannuation, this would offer greater accessibility and portability before super savings can be withdrawn. These could be modelled after the UK’s flexible Individual Savings Accounts (ISA).

2. Reduce CGT for long-term domestic holdings: Use lock-up conditions to direct patient capital into the Australian economy. France’s Plan d’Epargne en Actions (PEA) offers a model: after five years, dividends and capital gains from EU stocks are tax-free.

3. Phase out negative gearing and CGT discounts for existing housing: Limit concessions to new builds or affordable rentals.

4.Restrict direct residential investment to listed real estate investment trusts (REITs) accessible to all tax residents, with profits reinvested into new housing. This would reduce churn, raise capital, and expand access to residential investment opportunities.

5. Offer fair loan rates for approved index funds: Extend the same borrowing leverage available to property owners to long-term index investment portfolios (e.g., 10 or more years). If borrowing rates were equal, many people would choose to leverage the FTSE All-World and hold it until retirement instead of taking out a mortgage.

6. Create a sovereign wealth fund from resource royalties: Following the Norwegian and Alaskan models, all Australians could benefit from collectively-owned resources.

7. Scale up public and cooperative housing: This would require federal funding, state-led investment and council-level planning reform. A useful model is Vienna’s non-profit rental sector.

8. Strengthen renters’ rights: Continue to build on reforms at the state level, including in Victoria and NSW. In Germany, leases are indefinite by default, terminations are restricted to specific grounds (e.g., personal need or serious breaches), rent increases are capped (e.g., 15 per cent over three years) and repair obligations are enforced. Such protections are essential to make renting a secure, long-term option.

9. Invest in financial literacy: Make basic investing education a mainstream topic in schools. The psychological comfort of housing stems from familiarity; few Australians understand the power of compound returns through index funds. Financial literacy would break this illusion of safety and empower households to build independent wealth.

Breaking the housing-debt trap also needs cultural change. We must retire the myth that renting means failure and that mortgage debt equals success. A debt-free renter with an indexed portfolio is freer, wealthier and more resilient than a stressed homeowner stuck in one postcode for decades.

The real dream: freedom, resilience, prosperity

If Australia is serious about prosperity, mobility and climate progress, it must break the housing-debt trap and normalise sovereign investment alongside secure rentals. The real Australian Dream is not bricks and mortgage, but freedom: secure housing, shared prosperity and a fair stake in economic productivity.

This demands bold policy and a cultural reset. A house is not an asset, but a right. Our future will be built not on suburban land, but on shared prosperity. It’s time to stop worshipping houses and start collectively owning our future.

Dr Raffaele F Ciriello is a Senior Lecturer in Business Information Systems at the University of Sydney. His research focuses on digital innovation, ethics and public goods.

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