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Saturday, May 25, 2024

Pocock: Reform tax concessions to fix housing crisis

With AAP

Australia’s housing crisis is expected to get worse before it gets better, and the federal government is facing growing pressure to do more to fix it in the May budget.

However, new modelling from the Parliamentary Budget Office shows that reforms to tax concessions on investment properties could boost housing affordability, rates of home ownership, and deliver $60 billion in savings to the Budget over a decade, Independent Senators David Pocock and Jacqui Lambie believe.

Deloitte Access Economics partner Stephen Smith said the nation had not been building enough homes to keep pace with population growth, and new dwelling starts were particularly sluggish due to builders working through a backlog of half-finished homes.

“The cost of land, materials and labour will stay at higher levels, while recent insolvency rates suggest builders will need bigger profit margins if they are to deliver the significant lift in dwellings that governments and the community are crying out for,” he said in the latest business outlook report.

Mr Smith warned the correcting the housing crisis would take years, and “will get quite a lot worse before it gets better”. 

The economist was also unsure the nation’s overarching goal of building 1.2 million homes starting from mid-2024 would be met, as highlighted in recent industry forecasts. 

Senators Pocock and Lambie

The troubling state of the housing market has federal independents, home-building industry groups, and social welfare advocates crying out for more action before the May 14 budget.

Independent senators David Pocock and Jacqui Lambie have been pushing for investor tax reform. 

Modelling by the Parliamentary Budget Office suggests modest changes could save the federal budget $16 billion in a decade, which they say could be used to build more social and affordable homes. The crossbench senators said the modelling shows it is possible to protect people’s investments while moving to a model that uses tax concessions to incentivise new supply.

“The housing crisis is so widespread and so severe we need governments pulling every available lever to increase housing supply and affordability,” Senator Pocock said.

“Tax reform on its own won’t solve the housing crisis, but it can be a powerful tool to drive new supply and should be on the table for sensible debate.”

The PBO modelling involved five distinct combinations of changes to negative gearing and the Capital Gains Tax discount. All five involved some degree of ‘grandfathering’; that is, exempting existing property investors from proposed changes.

The most modest reform option, where CGT discount is grandfathered for existing rentals and halved for newly built homes, with negative gearing retained for a landlord’s first rental property, saves the federal budget $16 billion by 2033-34. This is money that could be re-invested in the supply of desperately needed social and affordable housing, the senators argue.

The main behavioural impacts of tax reforms factored into the PBO projections are the likely disposal of some rental properties by existing property investors and a reduced number of potential investors acquiring homes for this purpose. With more rental properties being sold and fewer aspiring property investors among potential buyers during this adjustment period, first home buyer acquisitions would likely increase, pushing up the home ownership rate from its currently depressed level.

Although possible house price moderating impacts of investor tax reform options were not specifically estimated in the PBO modelling, the Grattan Institute calculated that abolishing negative gearing and halving the CGT discount would leave prices 2 per cent lower than what they would otherwise have been.

NSW Treasury research showed that abolishing negative gearing and halving the capital gains tax discount for landlord investors would ‘increase the owner-occupied share of the private dwelling stock by 4.7 per cent, effectively returning home ownership in Australia to 1990 levels.

Polling commissioned by Per Capita in late 2022 for their 2023 report Australian Housing Monitor also found that 56 per cent of people surveyed agreed that “Governments should remove tax deductions for housing investors and use the money to build more public and community housing”. Even among Liberal voters, 48 per cent supported (and only 23 per cent opposed) removing tax deductions for housing investors with the funds being used for more social housing.

“I think most Australians would agree that we need to fix the housing crisis and negative gearing is part of the problem,” Senator Lambie said. “But protecting the mum and dad investors and retirees who have invested in housing must also be part of the solution. 

“Because this Labor Government got their arses kicked in the 2019 election, they won’t talk about fixing negative gearing. Senator Pocock and I have done the work, and I hope the Treasurer and the Prime Minister will be brave and take this opportunity to consider these sensible reforms.”

Home-building industry groups and social welfare advocates

The Master Builders Association and the Property Council have teamed up with the Community Housing Industry Association, Australian Council of Social Services, and housing affordability advocates to call on the government to double the size of its housing future fund. 

In a letter to the prime minister, the housing alliance said upping the size of the fund to $20 billion would help the government reach its home building target. 

Returns from the fund are used to publicly subsidise social and affordable housing developments, with the existing $10 billion fund expected to help deliver 30,000 dwellings in five years.

Anglicare Australia wants higher social security payments, more social housing built, and reform tax breaks for investors following the damning finding of its latest rental affordability snapshot.

It found rental affordability was “the worst it had ever been”: only 13.4 per cent of rental listings deemed affordable for a family of four with two parents on the minimum wage.

Federal government

Housing policy cuts across all levels of government, and the Commonwealth has become increasingly active in the space.

It has introduced the housing future fund, is working on a national housing and homelessness plan, and is trying to legislate its help-to-buy shared equity scheme

Housing Minister Julie Collins said the government’s reform agenda was ambitious.

“More help for homebuyers, more help for renters, and more help for Australians needing a safe place for the night,” she said. 

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