Australia’s property industry has warned the federal government's controversial cuts to negative gearing and the capital gains tax (CGT) discount will make the housing shortage even worse and push rents higher.
The changes, announced in the federal budget on Tuesday, are a major hit to property investors, limiting negative gearing to newly built homes and replacing the 50% CGT discount with a new inflation indexation model.
The government and housing advocates argue the tax changes will level the playing field between home buyers and property investors, but the plans have sparked an immediate backlash from different corners of the property industry.
Real Estate Institute of Australia president Jacob Caine said the tax changes may result in about 25,500 fewer homes being built over the next five years, citing recent Qaive and Tulipwood economic modelling.
“Australia is already well behind the National Housing Accord target of 1.2 million new homes, so we need policies that support investment and new housing supply, not policies that make delivery harder,” Mr Caine said.
“Private investment plays a critical role in Australia’s housing system.
This year's federal budget has major implications for Australia's housing market. Picture: Getty
“At a time of acute rental stress and chronic undersupply, policy settings should be encouraging more investment into housing, not creating uncertainty or reducing confidence.”
Rising rents and tight vacancy rates have hit rental affordability, which remains at its lowest level since at least 2008, when records began, according to the latest realestate.com.au Rental Affordability Index.
Hit to home building
Home building approvals have been increasing, but Australia is still behind on the National Housing Accord target of building 1.2 million new homes over the five years to mid-2029.
Treasurer Jim Chalmers has unveiled a raft of changes for the property market in this year's budget. Picture: Wardhaugh/Getty
Housing Industry Association chief economist Tim Reardon said the tax changes misunderstood how housing investment supported new home building.
“Investors are critical to funding new housing supply and commenced around half of all new home builds in the past,” Mr Reardon said.
“If investors leave the housing market, fewer projects proceed and fewer homes get built. The government assumes investors will simply redirect their money into new homes, but housing investment doesn’t work like that.
“If the overall attractiveness of residential investment falls, fewer investors participate overall.”
New homes have been exempted from the negative gearing and capital gains tax (CGT) discount cuts in a move to encourage investors to invest in new homes over existing property, shares and other assets.
But the tax changes have been welcomed by other housing advocates such as National Shelter chief executive Jackson Hills, who said the moves were the right thing to do.
Real Estate Institute of Australia president Jacob Caine said the property tax changes may result in about 25,500 fewer homes being built over the next five years. Picture: Supplied
“Curbing the CGT discount and negative gearing helps tilt the playing field back toward people trying to buy their first home, and away from speculation on existing housing stock,” Mr Hills said.
“It respects existing investment decisions, avoids unnecessary market disruption, and starts to unwind tax settings that have long skewed housing outcomes, disproportionally impacting low-moderate households.”
Housing infrastructure boost
While the tax changes drew a sharp reaction, a $2 billion boost for last-mile housing infrastructure in the budget was widely hailed as a win from the property industry.
Housing tax reforms in this year's budget have been designed to enable more first-homebuyers to get into the market. Picture: Julian Andrews.
It will boost housing‑enabling infrastructure such as water, sewerage and roads to unlock tens of thousands of new homes through funding incentives for states and councils to make land build‑ready sooner.
Urban Development Institute of Australia national president Oscar Stanley said the budget recognised that the country must build more homes to make housing more affordable.
“The $2 billion Local Infrastructure Fund is a welcome and practical step, but the test is in its rollout ensuring it’s the catalyst for cost effective housing,” Mr Stanley said.
Source: PropTrack.
“The Commonwealth has put more money on the table. States, territories and councils now need to bring forward land, accelerate approvals and partner with industry to deliver.”
The fresh funding takes the government’s total housing infrastructure investment to $6.3 billion, with a further $5.9 billion available to states and territories as part of the 100,000 homes for first-home buyers plan.
REA Group economic analyst Luc Redman said the fresh housing infrastructure funding should unlock new housing.
The budget includes $2 billion for housing-enabling infrastructure. Picture: Getty
“This is a good step forward,” Mr Redman said.
“It’s a subsidy on housing-enabling infrastructure, which can become quite costly, and it may also make certain developments more viable that would have otherwise been unviable.”
Treasurer Jim Chalmers said the housing and tax changes in this year’s budget were aimed at making housing more affordable.
“We’re levelling the playing field for first-home buyers with 5% deposits and tax reform to help more young Australians into their own home,” he said in his budget speech.
But shadow treasurer Tim Wilson said the negative gearing and CGT tax changes were very hard to support.
“The government’s own budget papers show it will lead to 35,000 fewer homes being built and rents increasing,” Mr Wilson told media on Tuesday.
“If the objective is to get young Australians into a home, building fewer houses and increasing rents ... doesn’t seem like the way you get there.”
Housing affordability remains at historically low levels in Australia, according to the latest PropTrack Housing Affordability report, with the dream of home ownership feeling increasingly unattainable for many Australians.
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