Wednesday 25 September 2024
MEDIA RELEASE
Housing supply the main game and modelling shows negative gearing changes shrink it
Noting reports of the government’s modelling via Treasury on changes to negative gearing and capital gains tax, the Property Council of Australia has posed a test for any new analysis. Do the changes grow or shrink the supply of new homes in Australia?
As recently as 17 September 2024, the Prime Minister stated that the key to solving Australia’s housing crisis is to increase supply, “every economist knows that’s the case”.
The Prime Minister referenced past Property Council analysis through Deloitte and acknowledged that any changes to negative gearing and capital gains tax “could potentially have a negative impact on [housing] supply “and that changing the current negative gearing regime “won’t boost supply”.
Australia is already tracking 300,000 homes short of the Federal Government’s own welcome 2029 target of 1.2 million new homes, despite a number of positive policy initiatives.
Current housing headwinds include high cost and hurdles of financing, years of rising material and labour inputs matched by decreasing construction productivity, low market capacity, labour market competition from historically large infrastructure builds and green/energy infrastructure construction, planning delays, looming ACCC acquisitions red tape, sluggish environmental and cultural approvals and ever-changing and disruptive state property taxes among other negatives.
Property Council Chief Executive Mike Zorbas said new housing supply is the main game.
“We have a huge housing gap across Australia and when modelled negative gearing changes widen that gap,” Mr Zorbas said.
“Previous Deloitte modelling shows negative gearing changes shrink the number of new homes by about 4 per cent and, according to previous work by the Grattan Institute, only reduce house prices by 2 per cent.
“Even if negative gearing changes didn’t model as poorly as they do for housing supply, why would you change now? We are already only building 160,000 homes against the 240,000 homes we need each year and housing supply conditions in states like Victoria are dire.
“Government taxes and charges are 30 per cent of the cost of your new home across the country. Let’s start by reducing government taxes and reforming planning systems to boost supply and avoid prioritising a discussion about a change that models as damaging investment in new homes across every Australian city and town,” he said.
2019 Deloitte research commissioned by the Property Council showed changes to negative gearing of the kind taken to the 2019 election would cause a 4.1 per cent hit on the already dwindling pipeline of new homes. Those changes would also be a $1.5bn hit to GDP and will cost 7,800 jobs.
ENDS
Media contact: Rhys Prka | 0425 113 273 | [email protected]
Ellie Laing-Southwood | 0416 007 830 | [email protected]
Frequently asked questions
What is negative gearing?
Negative gearing is a legitimate and common form of tax benefit arising when the costs of an income-producing asset, such as a rental property exceed the income. The benefit to the buyer or investor is that the shortfall between income earned and interest due can be deducted from current income taxes. Countries that allow versions of this tax deduction include Japan, New Zealand, Canada, France, Germany, Sweden, and the United States.
How many people currently use negative gearing in Australia?
April 2017 ATO data showed almost 2/3 negative gearers had taxable incomes below $80,000 per year. In addition, the ATO data showed:
A total of 2,047,000 Australians own an investment property
In total 1,277,000 Australians negatively geared an investment property
The average negative gearing deduction is $8,702
A total of 807,521 Australians with a taxable income of less than $80,000 a year negatively gear
More than 103,000 Australians under the age of 30 engage in negative gearing.
In 2019, the Property Council surveyed over 1,000 Australians about the ALP’s then-policy to abolish negative gearing concessions. The results clearly showed that people would be less likely to invest in a newly built investment property is negative gearing were dumped.
The key findings of the survey were:
- 33 per cent of potential investors surveyed said they would probably or definitely buy a newly built investment property in the next five years under the existing tax arrangements. This number drops to 24 per cent under proposed changes
- Similarly, for current property investors intention to buy a newly built property dropped from 34 per cent under current arrangements to 27 per cent under proposed changes
- Around half (49 per cent) of all those surveyed would be discouraged from investing in property if these proposed changes are made, while a further 42 per cent would reconsider the type of property they would invest in
- Current investors would be the most discouraged from investing in property under the proposed changes (58 per cent) compared to potential investors (40 per cent).