The Australian property market is abuzz following speculation about changes to negative gearing and capital gains tax policies.
Despite Prime Minister Anthony Albanese’s assurances that there are “no plans” to alter these policies, industry leaders and investors remain cautious about the potential impacts on housing supply and investment.
“We have no plans to touch or change negative gearing,” Albanese told media.
“What we’re concerned about is supply of housing and I’m not convinced it’ll make any difference that’s positive when it comes to supply.”
Earlier this month the Prime Minister said the key to solving Australia’s housing crisis is to increase supply: “every economist knows that’s the case”.
He referred to Property Council of Australia analysis that showed any changes to negative gearing and capital gains tax “could potentially have a negative impact on [housing] supply and that changing the current negative gearing regime “won’t boost supply”.
PCA chief executive Mike Zorbas is among those with concerns about the prospect of changes to negative gearing.
“Deloitte modelling shows negative gearing changes shrink the number of new homes by about 4 per cent and, according to previous work by the Grattan Institute, only reduce house prices by 2 per cent,” Zorbas said.
“Even if negative gearing changes didn’t model as poorly as they do for housing supply, why would you change now? We are already only building 160,000 homes against the 240,000 homes we need each year and housing supply conditions in states like Victoria are dire.”
A Procore and Property Council Survey this year showed that, while the Confidence Index rose marginally to 108 after a significant drop in the previous quarter, housing construction expectations for the next 12 months are still seven percentage points below the historical index average.
Housing price growth expectations are 20 percentage points above the historical average, suggesting a market struggling with supply constraints and rising prices.
Zorbas wants renewed focus on tax incentives that increase housing supply.
“Government taxes and charges are 30 per cent of the cost of your new home across the country,” Zorbas said.
“Let’s start by reducing government taxes and reforming planning systems to boost supply, and avoid prioritising a discussion about a change that models as damaging investment in new homes across every Australian city and town.”
LocalAgentFinder acting chief Suresh Raghavan says any potential changes could have wider implications for the investment landscape, which include “short-term volatility and long-term adjustments”.
“The market is already navigating the challenges of the past 12 to 18 months, so clarity from the government is crucial,” Raghavan said.
The Coalition also wants clarity. “There’s nothing wrong with the government considering anything,” Coalition finance spokesperson Jane Hume said, but claims that negative gearing changes could take wealth from mum and dad investors—and won’t solve the problem.
“We don’t support a tax on housing that will reduce the supply of housing and increase the cost of housing,” Hume said.
Real Estate Institute of Queensland chief Antonia Mercorella said any “major change to the rental sector during a time of low vacancy rates across Australia and long social housing waitlists could be catastrophic for the housing sector”.
“It would be unwise for the government to eliminate what is essentially a straightforward tax deduction for property investors” Mercorella said.
“Abolishing negative gearing would eliminate a range of economic benefits, fail to tackle housing affordability, and impact everyday Australians the hardest.
“The housing market requires stability and predictability, especially in these challenging times.”
Despite any uncertainty, developer focus remains on addressing the housing supply crisis. The government’s target of 1.2 million new homes by 2029 presents a significant challenge.
“Just a few months into the national target window of 1.2 million new homes by 2029 we know we will fall short by a third unless further reforms are adopted,” Zorbas said.
The property industry awaits clarity from the government, emphasising the need for policies that will boost housing supply and maintain investor confidence.
“We must build our way out of the housing crisis. We continue to need governments to come to the table with the right planning and tax settings,” Zorbas said.
Any decisions regarding negative gearing and capital gains tax will undoubtedly have significant implications for investors, developers, and homeowners.
Albanese is standing pat on policy. For now at least:
“My government is focused on more supply of housing, more public housing, more private rentals, more home ownership. That’s the key to dealing with the housing issues that we inherited after a decade of inaction.”
