A whole house, and the scale reads zero. That’s the thing about GDP nobody explains: a home going up in value adds nothing to what the country actually produces.
A couple of weeks ago I drove seven hours to hand out how-to-vote cards, then wrote the whole thing up. Quite a few of you read it. This week my big adventure was reading about capital gains tax for forty minutes on a perfectly good weekday because a Michael West Media piece landed in my inbox and I couldn’t help myself.
Every time the New York Times, Michael West Media or The Conversation turns up, I do a deep dive. A very deep dive. So between the seven days at a polling booth and the forty-minute tax binge, I think we can all agree: I need to get a life.
The good news is I’m going out with friends this weekend. Nice wine, good food, great company. Long overdue.
Before I go and remember what conversation with non-economists feels like, here’s the thing that piece explained that finally made GDP make sense to me after years of nodding along and understanding nothing.
The two kinds of “investing”
There are two ways to put your money to work. They look the same. They are not.
You can buy something that already exists, like an established house, and wait for it to go up in value. You end up richer. Good for you. But nothing new got made. The house was already standing. No extra jobs, no extra goods, nothing extra for the country. Your wealth went up and the nation’s output didn’t move an inch.
Or your money can go into a business. The business buys equipment, trains people, makes products, hires staff. That lifts what the country can actually produce. More gets made for every hour worked. That’s productivity, and productivity is the thing that makes wages rise over the years, for everyone, not just the person who put the money in.
So one is a win for you. The other is a win for you that’s also a win for the whole country.
That was the click for me. I’d always heard “investment” and pictured someone buying a rental. Turns out economists barely count that as investment at all. If it isn’t increasing what the country can produce, it’s really just savings wearing a nicer jacket.
Why it matters for the budget
For 25 years Australia poured its money into the first kind. Existing houses. The tax system practically begged us to, with the 50% capital gains discount and negative gearing making an established property the smartest tax play going.
The result is a $12 trillion housing market, nearly four times the value of every company on the stock exchange combined. A mountain of money sitting in houses that just go up in price, instead of in businesses that build things and employ people.
As one financial writer, Harry Chemay, put it in Michael West Media last week, residential land “may appreciate over time, but it does not by itself generate any economic output.” A house going up in value makes the owner richer without the country producing a single thing extra. michaelwest
That’s what the 2026 budget is trying to shift. Nudge the money out of “buy an old house and wait” and into building new homes and backing businesses. Whether it works is a separate question, and the government has done a woeful job explaining any of it, which I got into elsewhere. But the idea underneath is sound, and it’s the first time I’ve properly understood why anyone bothers measuring productivity at all.
If you want the plain-English version of what the budget actually does to your tax, I wrote that for Betty from Blacktown here. The polling booth piece, if you missed it, is here . And the family farms and capital gains argument is here.
Right. Wine.