One of the big policy changes that could come after the federal election relates to negative gearing and capital gains tax.
While there’s been thousands of media articles on how politically popular the Opposition’s proposed tax changes might be, no one has actually asked investors what they would do if these changes were to come into effect. Until now.
Yesterday we released new research on what the potential tax changes would mean for people with real skin in the game – current and potential property investors.
Our survey showed that when you make big changes to well-established policy settings, there are consequences. And not always the ones intended.
The research found that investors would be less likely to invest in newly constructed housing under Labor’s tax changes, not more likely as had been assumed.
This is a critical new insight because if less new housing is created for people to rent, it can only mean higher rents in the medium term.
It’s also important because when the ALP first announced its policy in early 2016 the market conditions were quite different to what they are today.
Housing prices are now on the way down from their 2017 peak and may have further to go. Investor lending has dropped dramatically, with the prudential regulator stepping in to temper further declines. Foreign investment in real estate has fallen away, banks have tightened their lending standards in the royal commission era, and building approvals are declining.
The housing needs of the one-third of Australian households who rent haven’t changed during that time however. Neither has the importance of housing construction to the Australian economy as a creator of jobs and economic activity.
Our survey showed that making changes to negative gearing and capital gains tax will indeed change the housing market – but not for the better.