Housing Minister Clare O’Neil says if predictions come true that house prices could drop by 10 per cent, it won’t be the fault of the government’s federal budget.<\/p>\n
Analysts at Morgan Stanley expect the government’s proposed changes to negative gearing and capital gains tax could reverse home prices due to lower expected returns and constrained borrowing capacity for investors.<\/p>\n
Westpac meanwhile has forecast the budget will “significantly affect” the housing market, with a third of new investor activity expected to fall off and total housing turnover expected to drop by a fifth.<\/p>\n
The bank’s “IQ” team expected dwelling prices to stall this year, with a risk in the near-term of an “air pocket” where prices drop sharply due to uncertainty over the tax changes and higher interest rates.<\/p>\n
Auctions have slowed as home buyers take stock of the government’s proposal to end negative gearing for existing homes bought after budget night and replace the 50 per cent tax discount on capital gains tax with a smaller discount that would only compensate for inflation.<\/p>\n
Ms O’Neil said those tax changes would only have a small impact on house prices.<\/p>\n
“I think there’s a bunch of economic models out there in the news \u2026 what I can tell you is the tax changes we are making in the budget are not the main driver of that,” Ms O’Neil said.<\/p>\n
“House prices in our country move. The biggest driver of them is what goes on with interest rates.<\/p>\n
“Treasury has modelled the impact of our tax changes on house prices, there is a mild affordability impact. For that, we get 75,000 rental households into their own home and a fairer market for housing in this country forever.”<\/p>\n
Treasury forecast in the budget that house price growth would slow by about 2 per cent in the short term.<\/p>\n
The Grattan Institute and Commonwealth Bank have supported that forecast.<\/p>\n
Minister says more new builds will push down rents<\/p>\n
It also forecast only a minor change to rents, and Ms O’Neil told Insiders the government’s efforts to “build, build, build” would place downward pressure on the cost of renting.<\/p>\n
Westpac’s latest analysis concluded rental yields would continue to rise gradually over the medium to longer term, alongside a modest lift in new dwelling construction.<\/p>\n
The government has been open that its tax changes will hurt supply on their own, but a $2 billion taxpayer-funded injection into housing infrastructure is expected to lead to a net increase of about 30,000 homes due to the budget.<\/p>\n
The minister said it was important to note who would own those homes, too, with about 75,000 homes expected to shift hands from investors to owner-occupiers as a consequence of the government’s tax changes.\u00a0<\/p>\n
Ms O’Neil said the budget should be considered as a whole.<\/p>\n
“What I can absolutely tell you is we are building more homes through our policies. Treasury has looked at the entire $47 billion package, and said the home building aspect will build about 420,000 new homes over the decade, and we are dead serious about this,” Ms O’Neil said.<\/p>\n
Tax policy amendments being considered<\/p>\n
The government is consulting on its proposed capital gains tax reforms, which business groups have warned will damage investment and worsen productivity.<\/p>\n
Ms O’Neil said there were four generous concessions from paying capital gains tax available for small business, which include a total exemption if the business has been held for more than 15 years and an exemption on the first $500,000 capital gains if a person is retiring.<\/p>\n
Business groups have asked for those exemptions to be made available to more businesses, calling for the cut-off to be lifted from those with a turnover of less than $2 million to a larger turnover of below $10 million.<\/p>\n