Terry, an empty-nester who lives with his wife in Sydney’s eastern suburbs, rented out two bedrooms vacated by their now-adult children.
“We thought it was great – meeting people from overseas and a lady from Melbourne with a child. She picked our room on purpose because it was colourful,” he says.
Colourful, but now empty: Terry rented out spare rooms in his house in Sydney’s eastern suburbs until he realised it had negative tax implications. Louie Douvis
But they stopped after just three months.
“I spoke to an accountant and he said: “Watch out for the tax”. I’d never thought about it.”
Since then, the rooms have lain unused.
“Those bedrooms are basically empty. They have been for quite some time,” Terry said. “The eastern suburbs are just full of empty bedrooms everywhere.”
Research backs that up. EY analysis of 2016 census figures identified 600,000 vacant rooms, the equivalent of 190,000 unused homes, across the NSW capital alone.
But while politicians argue about the pace and volume of new housing construction, with legislation for the federal government’s $10 billion Housing Australia Future Fund held up in the Senate, property and housing experts say changes to state and federal taxes around real estate could free up under-used housing immediately, easing rents at a time when vacancy rates are still close to record lows.
Home-sharing, increasingly forced by soaring rents, was a trend the country needed to ease the stock shortages, outgoing Reserve Bank governor Philip Lowe said at the end of May.
“The increase in supply can’t happen immediately, but the higher prices do lead people to economise on housing, don’t they?” Dr Lowe told a Senate budget estimates hearing. “We need more people on average to live in each dwelling, and prices do that.”
But major hurdles stop homeowners, many of them older people, from renting out rooms in under-used family homes in a way that could give them income and a source of companionship as well as giving an immediate relief to Australia’s rental crisis.
Under current tax rules, renting out part of a primary residence creates a proportionate capital gains tax obligation and if the homeowner is a pensioner, any extra income could reduce their pension eligibility. Any extra rental income would also be subject to income tax.
“If the federal government were to consider at least a three-year moratorium on the rental earned, the capital gains tax-free status and the impact on pensions, such arrangements could conceivably usher in potentially millions of bedrooms to soften the accommodation urgency,” said Scott Keck, the chairman of consultancy Charter Keck Cramer.
Community Housing Limited managing director Steve Bevington said renting out spare bedrooms could be part of the solution. 
It’s not unheard of. The Victorian government has agreed to trial a proposal by advocacy group Housing All Australians to cut land tax for commercial landlords making unused property available for pop-up or emergency accommodation, The Age reported in June.
Census 2021 data analysed by the Australian Institute of Health and Welfare shows 82 per cent of people aged 70 or more own their own home.
More than one-quarter of the country’s 9.8 million private households comprised just one person and if even half of those households made a room available at affordable rental prices, it could offer housing to hundreds of thousands of people currently priced out of the market, said Steve Bevington, the managing director of Community Housing Limited.
“Providing incentives for older homeowners who live alone to rent out spare rooms to people who are at risk of homelessness could be part of the solution we so desperately need right now,” Mr Bevington said.
Everybody’s Home spokesperson Maiy Azize, said the housing shortfall is too big to be fixed by simply renting out rooms. 
But they could only solve part of the problem of Australia’s housing mismatch, which meant more social housing had to be built to house low-income families, said Maiy Azize, a spokeswoman for Everybody’s Home, a housing advocacy group.
“Moves to free up spare rooms can provide some important short-term relief,” Ms Azize said.
“The best way to resolve that would be to end Australia’s social housing shortfall.
“We’ve got 640,000 households who need social housing and it’s not an option for all of them just to live in spare rooms.”
Current single-person asset test thresholds specify $301,750 for a full pension and $656,500 for a part-pension.
Once part of a primary residence was rented it became an investment property for pension eligibility and even in a regional area such as Wollongong, for which CoreLogic gives a median house price of $1.15 million, this was a big problem, accountant David McNeice said.
“That asset test for pensioners is a real stopper from pensioners taking on a boarder to relieve pressure on the housing crisis,” Figtree-based Mr McNeice said.
“If not completely disqualified [from the pension], they’d be substantially reduced [in terms of pension income].”
In Sydney’s eastern suburbs, Terry, who declined to be identified, said the revenue he briefly got from renting out his two unused rooms helped fund the maintenance his house needed.
“The bigger the house the more you need to do,” he said. “I do lot work myself. I have a garage of tools, and you spend a good couple of thousand a year on maintenance.”
But it was a shame financial penalties were preventing better use of the house he and his wife wanted to stay in, Terry added.
“I hate waste,” he said. “It’s waste.”
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