Labor’s assault on negative gearing and capital gains tax is set to force more real estate investors into first-home buyers’ heartlands and push up prices in those areas further, real estate experts have warned, as business demands a rethink of Jim Chalmers and Anthony Albanese’s $77bn tax grab.
The Prime Minister on Thursday repeated his claim that the policy would help young people get into the housing market, as he again denied he lied about the taxes before the last election.
The Australian Chamber of Commerce and Industry is one of the first major business groups to demand a rethink of the budget’s core tax policies, as it warned Labor businesses would suffer under the “collateral damage” caused by the CGT and trusts reforms.
Anthony Albanese said earlier on Thursday: “We’re not prepared to sit back and say we know that there’s an ongoing issue with first-home buyers and with young people getting into housing and that that’s of concern to them, but also to their parents and grandparents and say we’re just going to kick this can down the road.”
Now that buying a brand-new rental property has become the most tax-advantaged investment in Australia after all other assets got hit by higher taxes, real estate experts warned that first-home hotspots – typically outer, lower-cost suburbs – would see crowded competition. Real Estate Institute of Australia president Jacob Caine said the changes would “effectively funnel or push investors into new builds”.
“At the same time they’re purporting that new builds will sort the problem for first-home buyers,” Mr Caine said.
Negative gearing has been restricted to new builds, as has the 50 per cent capital gains tax discount, loan serviceability for borrowers will reduce drastically once negative gearing is disallowed on existing properties, and new construction also gives investors big depreciation deductions, some of which were abolished for established housing by the Coalition in 2017.
The industry group chief said if new home supply did not outperform demand, “invariably the prices of those properties are driven up as investors with more money than first-home buyers compete in that same pool”.
Mr Caine said first-home buyers with families continued to prioritise buying new homes built on the fringes of cities, although competition had stiffened in the past two years with strong capital growth making outer suburbs more attractive to investors.
Many investors have traditionally avoided new builds because construction can take a year or more, draining cashflow.
Master Builders Australia is one of multiple peak housing bodies conducting modelling on the impacts of the changes following their confirmation. Chief executive Denita Wawn said the initial “perception by many” was that “by still maintaining an incentive for new builds over old builds you’ll see property investors gravitate from old to new”.
Property investment educator and author Peter Koulizos said investors traditionally targeted established housing closer to city centres because of its higher capital growth. “Not only are first-home buyers going to be targeting new homes because that’s where most of the grants and incentives are, now they have the added competition of investors, and the advantage that investors have is that they get to claim it all on tax and the first-home buyer can’t,” he said.
He said there could be more townhouses built in inner suburbs because of their land component and investor tax incentives.
“Shares are being taxed just like property with capital gains tax, but with new homes you can either go with the 50 per cent discount or the new way (inflation indexation),” he said. “Supply of housing is inelastic. You can’t snap your fingers and change it. If you’re trying to push more people through this small hole which is called housing supply, you just can’t do it, so prices have only got one way to go and that’s up.”
ACCI acting chief executive David Alexander said the CGT and trust tax changes aimed at housing investment would hit investment across the board.
“Business start-ups, for example, are a critical part of future innovation and productivity, but the increase in tax on capital gains on these businesses will drive investment away to more favourable destinations,” Mr Alexander said.
Independent Food Distributors Australia chief executive Richard Forbes said the tax changes were “just another tax grab that will stifle investment, impact business viability and add further time and effort to an already high administrative burden”.
“The introduction of a minimum tax of 30 per cent on discretionary trusts will have a significant impact on many family businesses struggling to stay afloat in an environment of high operational costs, increasing government red tape and high state and federal taxes,” Mr Forbes said. “The Prime Minister has said repeatedly that small business is the engine room of The Australian economy then why this decision?”