CGT discussion 'a distraction' from structural causes of housing crisis: HIA

Housing Industry Association managing director Jocelyn Martin said that modelling undertaken by the association indicated that removing or restricting either the capital gains tax discount would reduce dwelling construction, reduce construction employment and potentially increase rents over time.

In its submission to the committee, the HIA said that Australia's housing affordability challenge reflected "a persistent structural imbalance between demand and supply".

"Housing market pressures have emerged from the interaction of planning systems, infrastructure funding models, construction costs, population growth, financing conditions and taxation arrangements across all tiers of government," it said.

Speaking before the committee, Martin said Australia did not have a tax concession problem but instead a "housing supply problem".

"Unless this committee is prepared to confront that reality directly, this inquiry risks becoming a distraction from the structural causes of the crisis," she said.

"Why are we here debating the taxation of investors when governments are extracting close to $200,000 in taxes and statutory charges from every new home built in this country?"

Martin said the Housing Industry Association had estimated that the GST alone adds roughly $100,000 to the cost of a new house.

"If the concern is truly housing affordability, then why is the tax system penalising housing? Why is new housing treated as a revenue base?" she said.

"If this committee is serious about intergenerational equity, then it should begin by examining the taxes embedded in the cost of construction, not by examining long-standing principles of tax neutrality."

The association said there was a tendency in the public debate on housing affordability to assume that raising taxes on investors will rebalance the system in favour of Australians.

"In reality, restricting supply locks in capital gains for existing owners and contains entry for those who later. It would embed the inequality that exists now for decades to come," Martin said.

"If we build 800,000 net additional dwellings over five years, as we forecast, but household formation exceeds 1 million, then prices rise regardless of the CGT rate, and investors will make even more profits."

Master Builders Australia chief executive Denita Wawn agreed that the major driver of the housing crisis was the lack of supply.

"We have not been building enough homes for over 30 years. This is why home ownership is harder than ever before and it is why rents are high," Wawn said.

"We need to build to increase supply, to improve affordability for owner-occupiers and renters alike. We need to grow the number of homes available, rather than just simply changing the relativities between owner occupiers and renters from existing supply."

Speaking at the Senate inquiry, Treasury First Assistant Secretary Dr Shane Johnson said modelling and research around the CGT discount suggest that while changing the discount would not increase supply, it could change the ownership mix between investors and home owners. 

"There is a range of research on this and these studies typically suggest that changes to the CGT discount would typically have a relatively small impact on the housing market," Johnson said.

"What may change is the ownership mix. When you look at those studies that have been done, that seems to be the effect; that you have very small changes in the housing market but it potentially changes the ownership mix." 

Johnson said this means that adjusting the discount could potentially provide an opportunity for more first home owners to have a house even though it would not increase supply.

Master Builders chief economist Shane Garrett warned that if the capital gains tax discount didn't exist, there was a risk that the pool of viable new home building projects may be smaller than it is now.

"When homes get built by private developers, they look at the costs, they look at the prospective selling price, and they look at how long it will take to build, and they look at all of that and decide to proceed on that basis," Garrett said.

HIA agreed that any changes that negatively impact the feasibility of new developments could further diminish new housing supply.

"A lot of the reason why we're falling short of the [government's] 1.2 million homes target is because we are not building enough in the multi-unit sector," Martin said.

Some of the factors that kickstart multi-unit sector developments are demand and feasibility, she said.

"Feasibility is done at the very early stages before they even dig a hole. All of those things go into the mix at that point there, including future capital gains and what an investor is likely to pay or an owner occupier is likely to pay for that apartment," she said.

"At the moment, feasibility doesn't stack up. So anything that might influence that level of demand for the multi-unit sector is going to actually be a factor [for supply]."