Changes to negative gearing will hike property prices further

The age-old negative gearing debate returns, but this time with bad news.

While proposed changes to negative gearing rules are said to likely have a positive influence on the Australian housing market, experts have warned that instead of making property a more affordable investment for everyday Aussies, it could even force prices out of reach altogether.

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According to Housing Industry Association (HIA) economist Tim Reardon, the housing affordability issue in Australia has caused unnecessary constraints on home building, which has prevented a sufficient number of houses to be built to meet demand of growing cities.

“Increasing the tax burden on housing is not the solution to increasing the supply of housing” Reardon said.

“Any new taxes or changes to negative gearing will exacerbate the affordability challenge by discouraging investment in new housing, force up the cost of renting and make it harder for first home buyers and renters to get into a home.”

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“Increasing taxes on housing through additional stamp duty, means testing negative gearing or increasing capital gains tax, will create additional barriers to investing in residential property and so supply will fall,” he warned.

“If the supply of housing falls further the cost of housing will increase for both renters and owner occupiers, further exacerbating the affordability challenge.”

Instead he said that increasing the supply of housing is the key to addressing Australia’s affordability issue.

This involves adequate release of land for new dwellings including increasing the density of housing in metropolitan areas.

“Increasing the tax imposed on rental housing at a time when there is inadequate supply of rental accommodation will drive up rental prices further making it increasingly difficult for first home buyers to save a deposit,” Reardon said.

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“We have seen a significant decline from investors in the housing industry since APRA introduced additional restrictions on investor lending since April. Residential land supply is at the heart of the affordability problem, the latest HIA-CoreLogic Residential Land Report shows that the median vacant residential land lot price rose nationally by 6.5 per cent during the September 2017 quarter to reach $267,368.”

“This year Stamp duty bills have increased almost three times faster than house prices since the 1980s and this trend will continue unless stamp duty is reformed.”

“Furthering supply, by doing away with red tape to free up residential land and getting rid of punitive taxes like stamp duty, are much better options than populist sounding policies that in reality only tax investors who drive growth in the housing market,” he said.