Economic modelling warns against increased housing tax in federal budget

In a stark warning to the Federal Government, Australia’s building and construction industry leaders have highlighted the potential detrimental effects of altering Capital Gains Tax (CGT) and negative gearing on the housing sector. Independent economic modelling conducted by Qaive and Tulipwood Economics suggests that proposed changes could significantly hinder new housing supply, exacerbating the current housing crisis.

Jocelyn Martin, General Manager of the Housing Industry Association (HIA), emphasised the severe repercussions such policy shifts could entail. “Tinkering with Capital Gains Tax or negative gearing on housing will have disastrous effects for renters,” she stated. The modelling forecasts a substantial decline in housing development, with Martin noting, “Removing the CGT discount, with minimal grandfathering, would lead to a 33,000 reduction in homes built, a loss of over 3,000 construction jobs and a fall in GDP of $3 billion.”

The report arrives at a critical juncture as the Federal Government prepares its upcoming budget amidst rising interest rates and a deepening housing crisis. The industry, committed to the National Housing Accord’s ambitious target of constructing 1.2 million homes over five years, is urging the government to implement policies that will enhance, rather than hinder, housing supply.

Martin further elaborated on the potential impacts of removing negative gearing, stating, “Removing negative gearing, with minimal grandfathering, would lead to a 46,000 reduction in homes built, a loss of over 4,300 construction jobs and a fall in GDP of $2.3 billion.” The modelling underscores how such changes could significantly disrupt the housing market, affecting both supply and affordability.

The industry’s concerns are compounded by recent findings from the Select Committee on the CGT Discount, which, according to Martin, failed to adequately address the ongoing housing supply crisis. “Australia is in the midst of a housing and rental crisis, with rental vacancy rates across the country barely above 1 per cent. Taxing investors who fund the development of more housing only worsens affordability for the renters that depend on these properties,” Martin warned.

The modelling further suggests that halving the CGT discount to 25 per cent and restricting negative gearing to a single existing property could lead to a fall in GDP of more than $3 billion, the loss of 4,300 construction jobs, and a reduction in housing starts by 46,000 over five years. “The priority for governments must be to pull out all stops to support new home building. This means reducing the cost of development and reducing taxes on home building – not increasing them,” Martin asserted.

The industry’s call to action is clear: the Federal Government must adopt a holistic approach to housing policy, one that recognises the critical role of private rental investment in addressing the housing crisis. “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,” Martin stated.

The modelling’s findings highlight the broader economic implications of potential policy changes. With a fresh interest rate rise, increasing global uncertainty, and an emerging fuel and energy crisis, Martin urged the government to consider how they can help reduce the cost of home building and increase supply, rather than imposing additional taxes. “Not every renter is in a position to become an owner – they may not have the finances yet, may be temporarily relocating for work or study or may never wish to buy a home. 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,” she cautioned.

As the Federal Government deliberates on its budgetary plans, the industry is hopeful that the insights provided by this economic modelling will guide policy decisions. The stakes are high, with the potential to either alleviate or exacerbate the housing crisis depending on the path chosen.