A prominent industry economist has urged the federal government to show more leadership on housing supply and policy reform, or risk a downturn in Australia’s economy.
Harley Dale, chief economist at the Housing Industry Association (HIA), has called on the federal government to resist tinkering with housing-related tax policies and instead focus on increasing supply if it is to maintain economic prosperity into the future.
“Australia will fail to achieve this objective without federal government leadership and involvement in housing policy reform, including strategic planning for the future housing and residential infrastructure requirements of our growing and ageing population,” Mr Dale said.
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He said tinkering with negative gearing and capital gains tax provisions “does not represent real reform”, and "risks damaging confidence towards the housing industry" at a crucial time in the property cycle.
“A key finding in the latest HIA National Outlook [report] is that a peak in new home building activity will be followed by a significant cyclical downturn extending to 2017-18,” Mr Dale said.
New dwelling commencements are forecast to decline from a record peak of 220,000 in 2015 to around 160,000 in 2017-18, while the growth in residential property prices will continue to slow, according to the HIA.
“The national new home building sector has made an outstanding contribution to overall economic activity in Australia over the last four years,” Mr Dale said.
“Without this contribution from residential construction, the domestic economy would have been considerably weaker than has turned out to be the case over recent years.”
Mr Dale's comments come after the federal opposition announced in February that it would restrict negative gearing to newly-constructed homes and reduce the capital gains tax discount from 50 per cent to 25 per cent from July 2017 if elected this year.
While the government has publicly rebuked Labor's policy proposal, there has been speculation that changes to current negative gearing policy may be announced as part of this year's budget, set to be delivered on 3 May.
Philippe Brach, CEO of Multifocus Properties and Finance, has previously warned that Labor’s proposed changes would be as good as “killing off negative gearing altogether” and would likely lead to a slowdown in construction.
“Constraining negative gearing to only new properties? That would be as good as killing off negative gearing altogether because if you’re an investor and you’re buying new, the only people you can sell to once you need to sell are going to be owner-occupiers, because obviously investors can’t buy it.
“If Labor wants to do that, it’s going to have a similar effect, the construction industry is going to slow down seriously, investors are going to not buy anymore for a period of time and it's going to be a nightmare.”
Under Labor’s proposal, negatively geared investment purchases of all properties made prior to July 2017 would be honoured under the existing negative gearing scheme – a fact Mr Brach believes would contribute to an influx of listings as investors desperately try to cash in before the restrictions take hold.
“It’s just going to create a ripple effect, the fact that they touch negative gearing, it’s just going to spook everyone and you’re going to have heaps of people putting their properties on the market,” he said.