The owner of Australia’s largest private held residential land developer, Nigel Satterley, warns rents could rise 15 to 20 per cent over the next two years and first homebuyer inquiries have dropped 50 per cent, as Anthony Albanese and Jim Chalmers play down growing consequences of their May budget tax reform package.
After federal government debt ticked over $1 trillion for the first time on Thursday, economists’ calculations indicate the cost to the economy of Labor’s tax changes will create an “excess burden” of up to $500,000 per new home that it expects such tax changes will deliver.
Former Commonwealth Bank chief executive David Murray said the tax changes were piecemeal and, combined with falling house prices, would hurt wealth and slow the economy without serious productivity reform and changes to corporate and personal tax rates.
On Friday the government’s National Housing Supply and Affordability Council revealed the federal government would miss its national target of 1.2 million new homes by 18 months.
Urban Taskforce Australia chief executive Tom Forrest said nobody should be surprised that the National Housing Accord targets were slipping out of reach.
“Even the most optimistic of paid government cheer squad ‘advisers’ – the National Housing Supply and Affordability Council – was reportedly forecasting that the National Housing Accord target will now no longer be reached until the end of 2030,” Mr Forrest said. “The reality is it will be a fair bit later than that.”
Following the big four banks all reporting drops in home loan applications of up to 28 per cent for investors since the budget, Labor declared this week it had “brought to an end” a system that enabled investors to compete at auctions, and curtail “taxpayer-funded landlord welfare.”
But Mr Satterley – who sells about 3500 properties a year, and receives insights from investors who buy land, build homes, and rent them out – said it was not just three interest rates hikes this year that were slowing property purchases, but the impact of tax changes on behaviour.
Declaring he was not like a publicly listed company that “window dressed”, Mr Satterley said he was now forecasting a 36 per cent decline in combined residential land sales from developers across country this coming year.
Following modelling by NAB and Ray White this week that showed rent hikes of 30 per cent could be passed on by some investors wanting compensation after the removal of tax concessions, Mr Satterley said he also saw higher rents on the horizon.
“I think the rental increases will be about 15 to 20 per cent over the next two years or about 7.5 per cent per annum,” Mr Satterley said. “Investors know there’s a shortage, and what they’re saying to us now at the cold face is, ‘We’re going to build a new rental home and we won’t be selling it because of the new rules’, because if they sell it, the percentage of tax has increased. They say to us, we’re going to rent this forever. We won’t be selling it because of the new tax implications.”
The developer briefed his five bankers this week and said the press had a responsibility to say what was going on that a significant drop in sales was on the way.
“When the market is normal the demand for lots is 50,000 per annum and our forecast for this year will be about 32,000,” he said.
Asked to what that was attributed, Mr Satterley said: “The new budget and the changes to the rules. It’s made the buyers very cautious because the investors can’t buy established houses and get a tax deduction. Since the federal budget and the tax change announcement that have come out, the first homebuyer inquiry has dropped by 50 per cent and first home buyers have become very cautious.”
Official lending figures released last week showed both first homebuyer borrowing categories – those whose first property purchase they will live in and those who will rent it out – showed declines in home loan commitments of 3 per cent and 14 per cent respectively.
This week Stockland, Australia’s biggest listed residential developer, said inquiry volumes were down in the fourth quarter following cumulative interest rate increases and tax changes, while Mirvac, another listed developer noted “moderation of sales activity and inquiry” in this period.
The government has repeatedly said it wants to get more renters into the first homeowner market. “The best way to put downward pressure on rents over time is to build more homes, and also to help more renters become first-home buyers, which is, you know, really one of the fundamental objectives of our ambitious tax reform package – to make it easier for people to buy their first home,” Dr Chalmers said this week.
But the cost of the tax changes on the economy, known as “excess burden”, were calculated this week by quantitative economics consulting firm Qaive’s Bob Scealy and Tulipwood Economics director Joe Branigan to be $500,000 per new home to be built and to bring each extra first-home buyer into the market.
“The government’s housing package raises $43bn in extra tax and claims at most 30,000 net additional homes,” Mr Branigan said. “Once the additional federal infrastructure expenditure and plausible state delivery costs are included, even a conservative marginal excess burden of 30c in the dollar implies about $15bn of deadweight loss – roughly half a million dollars for every net additional home.”
Mr Murray said the tax changes would hurt the economy. “When I was CEO I may have said house prices were going too high, but trying to edge them down with policy changes is not effective,” the former CBA chief said. “It will lead to a downturn in housing and that has a wealth effect and that will slow the economy.”
While Mr Satterley said the tax changes would be part of driving rents higher, he said immigration was part of the strength too. “The rental market is very, very strong because today, there’s about 460,000 shortfall of dwellings,” he said. “We’ll never catch up, and that’s why there’s so much pressure on rents. The immigration should be at least 240,100. The rents are going to continue to rise, and I would use the word quickly, well above inflation rate because of the shortage.”
Economist Chris Richardson said rents would not rise 30 per cent over two years and would not rise because of the budget tax changes. “No, housing rents in Australia aren’t about to rise 30 per cent as a result of the tax policy changes in the budget.” he said. “Yes, the budget changes will raise rents – and more than the $2 that Treasury has said. But, no, there’s no 30 per cent increase in rents due to the budget in the offing.”
He said renters were “always going to be in the firing line” right now, regardless of what the budget did or didn’t do.
“What the budget did do is help wannabe first home buyers, yet that help comes at a cost to renters,” he said.
Additional reporting: Ben Wilmot
Read related topics:Anthony Albanese