CGT discount reduction would stifle housing supply, lobbyists argue

“At a time when interest rates are rising, a war is waging and the country is in a housing crisis, now is the time to introduce policies that turbo charge new housing supply,” the statement read.

“Builders, renters and home owners cannot afford policies developed in a silo that would stall or reduce the number of new homes being built.”

The housing lobbies argued that reducing the CGT discount or negative gearing would reduce rental property investment, leading to a supply contraction that would put upward pressure on rents.

Modelling by Qaive and Tulipwood Economics, commissioned by the housing industry bodies, found that removing negative gearing and the CGT discount would raise the “user cost” for property investors and lead to higher market rents.

It concluded that halving the CGT discount to 25 per cent and restricting negative gearing to a single property would lead to a fall in GDP over $3 billion, and housing starts of almost 46,000. 

Instead of paring back the CGT discount, the housing lobbies said the government must continue to focus on supply-side measures, adding they were “firmly committed” to the National Housing Accord target of building 1.2 million new homes over 5 years.

“The National Housing Accord is a rare opportunity to address the housing crisis. This year’s federal budget can either boost supply or set it backwards,” the industry bodies said.

Last Tuesday, the Select Committee on the Operation of the Capital Gains Tax Discount released its final report, after being tasked with analysing the impact of the CGT discount on Australia’s housing market.

The committee found that the CGT discount had the capacity to distort decision making and incentivise tax planning, may distort the allocation of investment across the economy and had “skewed the ownership of housing away from owner-occupiers and towards investors.”

It also found that the benefits of the CGT discount were unequally distributed, with negative implications for income, wealth and intergenerational equality.

In its commissioned modelling, Qaive and Tulipwood focused on the CGT discount’s impact on rental availability, which they argued was strongly linked to investor interest in the sector.

“Not every renter is in a position to become an owner at any given moment, and the unintended consequences of well-meaning policies to grow the ownership pool by shrinking the rental pool are likely to fall disproportionately on the shoulders of the most vulnerable,” the report noted.