iscover Tweaks to negative gearing, CGT won't solve housing crisis, says Domain, HIA
TaxTackling the housing crisis will require increasing supply, rethinking stamp duty and making better use of existing housing, says Domain and Housing Industry Association.
Domain chief of research and economics, Dr Nicola Powell, has warned that changes to negative gearing and the CGT discount won’t fix housing affordability alone, following the release of the final report by the inquiry into the CGT discount.
The majority report of the Senate committee found that the design of the capital gains tax discount has the potential to distort investment allocation across the economy.
The report acknowledged that several factors influence housing markets. Still, it said there was evidence that “the concessions provided by the capital gains tax discount, in combination with negative gearing, [had] skewed the ownership of housing away from owner-occupiers and towards investors”.
Both the Greens and senator David Pocock called for changes to the CGT discount and negative gearing in additional comments in the report.
Dr Powell said there was a tendency to treat negative gearing and CGT as a quick fix, but housing affordability wasn’t that simple.
“These tax settings haven’t been the main drivers of price growth. It’s been low interest rates, strong population growth and not enough homes being built,” Powell said.
“Even with CGT changes, we’re talking about relatively small price movements of around 1-4 per cent. That’s less than the growth many cities saw in a single quarter last year."
Powell said a change in tax settings could, however, see a shift in who’s buying property.
“If investor activity eases, first-home buyers could have a better chance of getting in,” she said.
If the government wants to address affordability, however, Powell said it will need to think much more broadly.
“That means tackling supply, rethinking stamp duty, and making better use of the housing we already have,” she said.
“There’s no silver bullet, but broader reforms like moving from stamp duty to land tax, reviewing policies that discourage efficient use of housing, and investing in infrastructure to unlock supply could make a real difference.”
Housing Industry Association managing director Jocelyn Martin similarly agreed that addressing the structural barriers to boosting supply should be the government’s key priority.
“The priority for governments must be to pull out all stops to support new home building. This involves focusing on the cost of development and reducing taxes on home building - not increasing them,” Martin said.
“Proposals for increasing Capital Gains Tax or winding back negative gearing in the May budget point this conversation in completely the wrong direction and only serve to constrain home building and affordability further.”
Liberal senators Dave Sharma and Andrew Bragg expressed their opposition to changes to the CGT discount in the inquiry report, describing it as a “simplistic and one-dimensional response”.
“Housing supply has collapsed as population growth has surged. Australia has gone from building around 220,000 new dwellings in 2018 to around 170,000 last year. Australia has only around 400 dwellings per 1,000 people, well below the OECD average of nearly 500,” Sharma said.
“That is the real housing story, fewer homes, more pressure, and a government squibbing its responsibility.”
Miranda Brownlee
Miranda Brownlee is the editor of Accountants Daily and Accounting Times, the leading sources of news, insight, and educational content for professionals in the accounting sector.
Miranda has over a decade of experience reporting on the financial services and accounting sectors, working on a range of publications including SMSF Adviser, Investor Daily and ifa.
