The only certain outcome of any meddling with investment property taxes in the upcoming budget is that the tax-free family home will be even more attractive in Australians’ money making calculations.
Wherever Treasurer Jim Chalmers settles on his budget measures and gets approval from the cross benches in the Senate, Australians will increasingly conclude that their wealth best comes from owning, improving and selling their tax-free principal place of residence.
The mooted budget measures will interrupt, if not worsen, the rental housing situation.
And it is questionable whether the changes will do much structurally on the much-vaunted generational affordability ambition of getting more millennials and Generation Z into property ownership.
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More and more taxes courtesy of Federal Treasurer Jim Chalmers. Picture: Martin Ollman.
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Some investors will likely be discouraged from selling to these aspiring homeowners, in the hope a future government will undo the measures.
Some potential investors will be dissuaded from buying new, given that new homes are often more expensive than established homes as the ABS calculates apartment construction costs have risen since the pandemic from around $330,000 to $568,000.
Encouraging investment in new housing has the appearance of being a no-brainer, but there will be consequences: some acceptable, others adverse, some easily foreseen, while others unforeseen.
Any new tax policies, for capital gains and negative gearing, need to sit within the actual complex circumstances of housing supply, or else there can be no improvement, let alone structural fix.
Of course there is inherent tension between the twin objectives of achieving higher owner-occupied buying and delivering rental supply.
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Some investors will likely be discouraged from selling to these aspiring homeowners, in the hope a future government will undo the measures. Picture: Getty
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It is hard to see how rents won’t rise with investors being encouraged into dearer housing.
Anne Flaherty, senior economist at REA Group, has released “fascinating” research about the price of new apartment prices on realestate.com.au.
“We can see the price point at which new apartment developments are being put at and over half of them are priced at $1.5m,” Flaherty told Sky News presenter Ross Greenwood on Business Weekend last month.
“Not really doing much to address affordability,” she noted.
The tumult from tax changes will be less if there is no retrospectivity in the changes. Some commentary suggests there will be grandfathering so existing tax rules will apply through current ownership, while others suggest there might only be partial grandfathering. Either way the complexity will be a deterrent.
Merely elevating the issue of investment ownership will trigger consideration in the minds of even the most lackadaisical investors.
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The tax-free family home will become even more affordable if Labor jam through their new taxes. Picture: Getty
Knowing the government will take more and investors will pocket less will prompt reconsideration of their investment strategy.
Australians typically stop at one investment property, so the budget could prompt hesitation in getting to this point. Taxpayers will decide it’s wiser to put their money into the tax-free principal place of residence.
They may trade their homes more to skim off some of their gains, hitherto being especially boosted by the demand impact of continued high migration. And they will be putting more money aside to assist their children and grandchildren to get their own home.
These are hardly the productive outcomes the Treasurer desperately seeks. The backdrop, of course, is the Greens recently signed off on a Senate report claiming ownership of rental properties was “distorting productive investment” in the economy.
Should Labor join in vilifying Australia’s 2.245m investors, it will come with real risks for the marketplace.
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