New modelling raises the stakes as Labor’s May Budget looms
New modelling published by Australia’s biggest housing industry associations warns that tens of thousands of homes are in the firing line if controversial tax reforms go ahead.
On Monday, the Real Estate Institute of Australia (REIA), together with the Housing Industry Association, Master Builders Australia and the Property Council of Australia, published a range of potential impacts from the various changes to the capital gains tax (CGT) discount and negative gearing being proposed ahead of Labor’s May Budget.
According to the modelling, which was put together by Qaive and Tulipwood Economics, a reduction in the CGT discount to 25% with full grandfathering for existing rental properties, while simultaneously restricting negative gearing to a single investment property per investor with no grandfathering, could cut dwelling starts by about 45,943 from now until 2029.
In a similar scenario but with grandfathered negative gearing, housing starts could be reduced by 45,524.
The modelling suggests that if the CGT discount is halved to 25% for future assets, with full grandfathering of existing holdings, new dwelling starts could decrease by 12,032. If the CGT discount is reduced to 40%, new dwelling starts could decrease by 8,897.
With the government’s commitment to building 1.2 million new homes by 2029 becoming increasingly unviable, the findings could give policymakers pause for thought.
The research drew on existing housing economics literature, publicly available economic and housing market data, and “well-regarded modelling frameworks frequently used by the Australian public service”.
“At a time when interest rates are rising, a war is waging and the country is in a housing crisis, now is the time to introduce policies that turbo charge new housing supply,” said a joint statement accompanying the research.
“Builders, renters and home owners cannot afford policies developed in a silo that would stall or reduce the number of new homes being built. Investors finance up to two in every five new homes built – private rental investment is part of the solution to our housing crisis, not part of the problem.
“Housing policy demands a holistic approach, simply pulling one or two policy levers that increase the tax impost on housing will not increase supply.”
The statement warned that reducing the CGT discount or negative gearing will lead to fewer available rental properties, thus putting pressure on rent prices.
In defence of tax reforms
Proponents of property tax reforms have rubbished the suggestion that they will hurt renters.
“Any reduction in house purchases by investors as a consequence of reduced rental housing tax concessions is more likely today to be replaced by house purchases by owner occupiers,” said Greens treasury spokesman Nick McKim earlier this month.
The Greens have signalled support for Labor treasurer Jim Chalmers’ superannuation reforms, on the proviso that Labor gets serious on property tax reforms in the upcoming May Budget.
“We are going to support the bill (to double the tax rate on earning on super balances exceeding $3 billion to 30%) as a down payment on genuine, progressive tax reform in this budget,” said McKim. “This budget is a once-in-a-generation opportunity for ambitious tax reform, and we are opening the door for Labor to walk through.”
Labor is yet to confirm that CGT and negative gearing changes are on the agenda, but the party has not ruled them out.
The Greens believe the CGT discount is “turbocharging the housing crisis, wealth inequality and intergenerational inequity”, saying: “If the Government is serious about reducing inequality and fixing the housing crisis, now is the time.”
But it is not just fringe parties vocally supporting CGT reforms.
The NSW Treasury has indicated that it backs removing or reducing the CGT discount, albeit for a fiscal, rather than social, motivation.
In a submission to the Select Committee on the Operation of the Capital Gains Tax Discount, NSW Treasury said the CGT discount costs the Federal government $23 billion in lost annual revenues.
The impact on tax discounts is “particularly relevant” for NSW, given individual NSW taxpayers have contributed approximately 38% of Australia’s net capital gains since the 2018-19 financial year.
NSW Treasury also links the discount to falling home ownership, especially among younger and lower‑income Australians, noting that investor lending has vastly outpaced finance to first-home buyers since the late 1990s.
“Furthermore, the benefits of the CGT discount are highly concentrated among higher-income individuals and are amplified through investment structures such as trusts, reinforcing wealth inequality,” NSW Treasury said.
But the industry associations remain thoroughly unconvinced.
“Not every renter is in a position to become an owner at any given moment, and the unintended consequences of well-meaning policies to grow the ownership pool by shrinking the rental pool are likely to fall disproportionately on the shoulders of the most vulnerable,” said REIA et al.
“The housing needs of almost one third of Australian residents and visitors are met through the rental market, and private landlords provide nearly six out of every seven rental dwellings. People rent for a wide range of good reasons, including while saving for a house deposit, working or studying somewhere far from home, or to maintain flexibility before making big life decisions like starting a family or moving permanently to a new location.”
