What CGT Changes Could Mean for Housing Supply

It’s a much-maligned tax concession that has come into sharp focus this week as the narrative ramps up around capital gains taxes and negative gearing. Ahead of Federal Treasurer Jim Chalmers’ Economic Reform Roundtable next month, the tax has become a lightning rod for both political manoeuvring and housing supply policy work. Recently, the McKell Institute published a think-piece calling for bigger tax incentives for investors contributing to new apartment supply. The proposal would tweak the capital gains tax (CGT) discount to 70 per cent from 50 per cent for new apartment builds, while existing detached houses would pick up the slack with a reduction in discount from 50 per cent to 35 per cent. The McKell Institute believes this would enable an additional 130,000 homes before 2030. Melbourne developer Illan Samuel, managing director of Samuel Property, says boosting the apartment CGT discount to 70 per cent could have a tangible impact on his projects. Samuel said the gap between apartments and housing discounts would be 35 per cent, which, when factored in with off-the-plan savings and stamp duty savings, is compelling for buyers. “If we are serious about creating housing supply we need to have as many drivers in terms of benefits. The investor market, despite rents rising, is starting to come back with lowering interest rates and the ability to borrow/service debt—so providing a further advantage to the apartment space is important. ▲ Rendering of Samuel Property’s Hali at Dromana development. “I can deliver 200 apartments on 2000sq m in the inner city with all amenities already in place. “If we wanted to achieve the same in the greenfields we might need 80,000sq m, or 40 times as much land—and without existing amenities and connections. “So apartments are the way to solve the housing crisis, both from an ownership and rental perspective.” Counter to this is a Labor for Housing proposal to entirely scrap the capital gains tax discount of 50 per cent, which could net the Federal Government an additional $5 billion a year. But it would slow down transactions and disincentivise investors significantly rather than put downwards pressure on the cost of delivery, according to HIA chief economist Tim Reardon. “Investors do not create demand for houses, because they don’t live in houses, demand for homes only comes from an increase in population or the lowering of the average number of people per house,” Reardon said. Reardon said it was government actions that was ultimately causing the shortage of supply. While the government has suggested it is forgoing up to $5 billion per annum in taxation revenue under the 50 per cent discount, Reardon said making changes to the capital gains tax and negative gearing will provide “negligible revenue” to the government. “It will lead to higher costs, price growth and greater returns to investors that will offset the increase in tax,” he said. “If you were to put a tax on the sale of used cars it wouldn’t lead to an increase in new car sales. “If the goal is to get investors out of the market then they should be doing everything to lower the cost of construction to increase the number of homes and stop the super pricing.” ▲ HIA chief economist Tim Reardon. Reardon said recent changes to the National Construction Code added “tens of thousands” of dollars to the cost of building a home. He said we needed to reduce the regulation burden and remove councils from the planning process. “They should not be judge and jury when it comes to planning,” he said. Reardon also said the state and territory governments should be ensuring infrastructure was being delivered, and reduce the taxation on housing, while the federal government should focus on “putting in place the framework to attract more foreign investment into the industry”. Reardon said 1.2 million new homes was an “excellent goal” but believes the measure of success should be a rental vacancy rate of between 3 and 5 per cent. “It means renters have options and landlords have to be good landlords in order to attract tenants,” he said. Reardon and Samuel are aligned on the development industry’s role in addressing the housing shortage. Reardon said governments should not be in the business of delivering housing, while Samuel said government needs to remember 97 per cent of all housing was delivered by the private development sector and incentivising development would help to deliver on housing commitments.

What CGT Changes Could Mean for Housing Supply

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