HIA warns against taxing housing harder to boost home construction
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Photo by Expect Best
The Housing Industry Association (HIA) has issued a stern warning to the Australian Government, urging it to refrain from altering negative gearing and capital gains tax in the forthcoming tax review. The association argues that any further tax instability could stifle new home construction and exacerbate Australia’s existing housing shortage.
In a bid to highlight the issue, the HIA released its latest report, “Taxation of Housing and its Impact on Supply,” which sheds light on the heavy taxation burden already placed on the housing sector. Tim Reardon, the Chief Economist of the HIA, emphasised the detrimental impact of increasing taxes on housing, stating, “You don’t fix a housing shortage by taxing housing harder. And you certainly don’t make homes more affordable by destabilising the tax settings that support new home construction.”
The report outlines how housing is one of the most heavily taxed sectors in the Australian economy, with taxes applied at every stage of the housing lifecycle. These taxes, according to the HIA, disproportionately affect new housing, driving up costs and making new projects less viable.
“The political reflex has been the same for decades,” Mr Reardon noted. “First it was to blame investors. Then foreigners. Then foreign investors. Meanwhile governments quietly add more taxes, more charges, and more costs to housing, and wonder why supply keeps falling short.”
The HIA’s analysis reveals that investors are crucial to housing supply, initiating over 40 per cent of new homes built in Australia. This figure is even higher for apartments and rental housing. Yet, according to the association, discouraging investors does not free up housing; instead, it halts its construction. “When you discourage investors, you don’t free up housing, you stop it being built,” Mr Reardon explained. “Investors don’t neatly switch from established homes into new construction when taxes rise. They leave the housing market altogether.”
The report also challenges the notion that changes to negative gearing or capital gains tax would enhance affordability or benefit first home buyers. It argues that housing prices are dictated by supply and demand, and shortages can only be resolved by constructing more homes. “New homes don’t exist in isolation,” Mr Reardon pointed out. “They become established homes. Taxing established housing more heavily reduces the value of new housing as well, which makes fewer projects stack up.”
In light of these findings, the HIA is calling on the Australian Government to provide certainty to the housing market as part of this year’s tax review. Mr Reardon stressed the importance of stability in the tax system, saying, “If governments are serious about increasing housing supply, the first step is simple. Commit to tax system stability for residential investment, rule out changes to negative gearing and capital gains tax, and stop layering new taxes onto new housing construction.”
The HIA’s stance is clear: more homes will only be built if governments stop treating housing as a revenue base and start viewing it as essential infrastructure. This perspective comes amid growing concerns about housing affordability and supply across the nation.
The association’s report aims to inform policymakers and the public about the potential consequences of altering tax settings related to housing. As the Australian Government prepares for its tax review, the HIA hopes its findings will prompt a reconsideration of current and future tax policies impacting the housing sector.
The ongoing debate over housing taxation and its impact on supply continues to be a contentious issue in Australia. With housing affordability at the forefront of national discussions, the HIA’s report adds a critical voice to the conversation, urging a balanced approach to taxation that supports rather than hinders new home construction.