Housing Crisis: Tax Reforms Risk Slashing New Home Supply, Report Warns
Each federal budget cycle consistently sparks demands to overhaul negative gearing and capital gains tax discounts, with critics arguing these policies unfairly benefit property investors at the expense of aspiring homeowners and renters. As housing costs have surged ahead of incomes for decades, the push for solutions that promote greater fairness is both understandable and urgent. However, the potential consequences of these reforms on housing supply have received far less attention than the affordability issues they aim to address.
Economic Modelling Highlights Supply Risks
Independent economic modelling, commissioned by Master Builders Australia, Housing Industry Association, Property Council of Australia, and Real Estate Institute of Australia, provides a detailed quantitative analysis of how various reform scenarios could impact the housing market and broader economy. The findings, detailed in The impacts of potential housing policy settings report, indicate that removing negative gearing with minimal grandfathering would reduce dwelling starts by up to 45,524 over five years. Additionally, eliminating the capital gains tax discount would cut a further 33,353 starts during the same period.
When applied together, the combined effect on new housing supply would be, according to the research, unprecedented. For advocates who view these reforms as a pathway to improved affordability, the significant supply implications warrant serious consideration and scrutiny.
Rental Market and Investor Role Under Scrutiny
The report underscores that nearly one-third of Australian residents and visitors depend on the rental market to meet their housing needs, with private landlords supplying approximately six out of every seven rental dwellings. Investors also finance up to two in every five new homes constructed in the country. Contrary to some expectations, policies that increase the cost of providing rental housing do not lead to lower rents over time, as confirmed by the report.
Instead, projections under the most significant negative gearing reform scenario show rental price growth could reach up to 2.4 per cent by the end of the decade compared to a business-as-usual scenario. This burden is likely to fall disproportionately on those least able to afford it, exacerbating existing inequalities in the housing market.
National Housing Accord and Policy Implications
Australia has committed to delivering 1.2 million new homes under the National Housing Accord, a target that reflects the substantial supply shortfall facing the nation. Achieving this goal requires that every policy lever in the Federal Budget be rigorously evaluated for its impact on supply, not just its appeal as a revenue measure or its superficial sense of fairness.
The economic modelling necessary to support this assessment is already available and has been made publicly accessible. There is no credible reason for the upcoming budget to proceed without engaging with these findings, as they provide critical evidence for informed decision-making.
Ultimately, Australia's housing future will be shaped by the decisions made in this budget, and the evidence to guide those choices is clearly laid out on the table. Ignoring these insights could undermine efforts to address the housing crisis effectively.
