Rents set to rise as federal budget targets property sector, warns Property Council
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Photo by Ivan S
In a stark warning to the Australian housing market, the Property Council of Australia has criticised proposed tax changes in the upcoming federal budget, cautioning that renters could face significant financial consequences. The Council’s chief executive, Mike Zorbas, has expressed grave concerns over the potential fallout from these tax reforms, which are expected to be announced in May.
“The most likely approach, as flagged by Ministers to date, is property tax hikes alone. 33 per cent Capital Gains Tax (CGT) discount vs equities at 50 per cent, with a 2-home negative gearing cap,” Zorbas stated. He argued that increasing the CGT on investments in new homes, while maintaining a higher discount for shares, would adversely affect housing supply. “Hiking CGT on investment in new homes relative to shares will hammer supply,” he added.
The proposed changes are seen as a move to address housing affordability, but Zorbas warns they could have the opposite effect. “That means intergenerational equity is at risk, especially for people who can only currently afford to rent not buy – almost 30 per cent of the population,” he explained. The Property Council’s analysis suggests that such tax reforms could lead to higher rents and a decrease in housing supply.
Zorbas further elaborated on the potential impact of the changes, stating, “Even if you put the CGT discount on existing property to 33 per cent, while leaving new homes untouched, and add grandfathering, upping tax rates on existing rental homes still means rents will rise and modelling shows housing supply will go down.” He highlighted that these outcomes would not significantly increase homeownership rates, as property prices are unlikely to decrease and interest rates remain high.
The Property Council’s concerns come amid a political landscape where the federal government, with support from the Greens, has the power to pass these budget measures. “Post budget, the Federal government can pass anything it likes with support from the Greens in the Senate,” Zorbas noted. “Together they are 39 of 76 votes. Only an outbreak of good judgement in the Albanese Cabinet can help rental affordability now.”
Zorbas also pointed out the challenges faced by first home buyers, whose median age is currently 34. He warned that without significant boosts in housing supply, this median age could rise to 40 in major cities like Sydney and Melbourne. “After May under any change scenario almost 3 in ten people will still need to rent next year and for the next decade,” he said.
The Council’s chief executive highlighted the reliance of rental investors on capital gains, given the low annual returns on properties. He cited the impact of various costs, including stamp duties, annual rates, land taxes, insurance, and possibly body corporate fees. “They rely on a rising house market. This desirable wealth effect is precious to more than six in 10 Australians as homeowners and housing investors more than most,” Zorbas remarked.
Zorbas warned that if investors shift their focus to shares or equities, the construction industry could suffer. “If the investor cohort shifted its marginal investment dollar to shares/equities, builders would have less work, there’d be less positions for apprentices, less skilled and older workers employed,” he said, adding that development feasibilities would become even more challenging.
He pointed to Victoria as an example of “daft” tax reform, criticising the state for its high level of government tax take and its impact on property investment. “They have repeatedly repelled patient institutional investment in property through taxes on foreign investors, they unthinkingly tinker with property settings annually,” Zorbas said.
Several factors are contributing to the housing crisis in Australia, according to Zorbas. These include population growth, fewer people per household, rising personal cost of credit, higher construction costs, and increasing federal, state, and local taxes. He also criticised “state and local politician-controlled land use limitations and the project assessment land mines routinely strewn across this land rich, low population country.”
In his final remarks, Zorbas emphasised the need for political action to address the housing crisis. “So much more needs to be done and the failures to date are 100 per cent political, not investor driven,” he concluded. As the May budget approaches, the Property Council’s warning underscores the complex challenges facing Australia’s housing market.