Login
‘Been there, done that’: History shows tax reform will drive investors out and tighten rentals
Australia’s housing shortage could deepen next month if the upcoming federal budget targets property investor tax settings, with investors likely to bear the brunt of any reforms.
According to Raine & Horne executive chairman Angus Raine, reducing tax concessions for investors would likely slash rental supply amid record-low vacancy rates, given residential property was already a heavily taxed asset class.
“Investors are already slugged with stamp duty at the point of purchase, while facing an annual land tax impost,” Raine said.
“Reducing either the CGT discount and/or negative gearing provisions would potentially make residential property less attractive to investors at a time when rental markets across Australia are experiencing wafer-thin vacancy rates and record-high rents.”
Raine said that past policy shifts, including Victoria’s land tax changes and the 1980s temporary removal of negative gearing, were key examples of unsuccessful government intervention in the property market, as investors exited in droves.
“Any such reforms introduced today would likely result in a reduction in the supply of rental properties. This would be financially disastrous for the more than one in four Australians who rent their home from a property investor,” Raine said.
He said that while there was a misconception that property investors were flowing in cash, most landlords are struggling families trying to save up for retirement.
“We know that the vast majority of landlords own just one rental property. Most of these investors are hardworking mums and dads, who are quite sensibly relying on property to build personal wealth,” Raine said.
“One in 10 self-managed super funds also invest in residential property, and any changes to the way property is taxed is likely to impact the retirement aspirations of tens of thousands of Australians.”
In addition to CGT changes, discussions about capping the number of properties a single investor could negatively gear have been circulating, which Raine said would create unfair situations, as not all properties are equal.
He said that a capped system would create distortions, in which one investor might hold two lower-value apartments in Bathurst, while another owns a single $3 million Sydney property and receives larger tax benefits.
“Limiting tax savings to one or two properties may not reflect the true level of investment,” Raine said.
Raine said that a value-based cap, rather than a property-count limit, would deliver fairer outcomes and prevent tax benefits from being disproportionately concentrated among wealthier investors.
According to Raine, with CGT and negative gearing reforms, the federal government was targeting easy wins rather than fixing the housing shortages.
He said successive policies, including demand-side subsidies and ongoing planning red tape for developers, combined with cost-of-living pressures, had created a perfect storm that worsened Australia’s housing supply-demand imbalance.
“This housing shortage is already a generational issue, and the concern is that knee-jerk reactions from governments, especially additional taxes on property investors, will only make it worse and extend it into a multi-generational problem,” he concluded.
Want to see more stories from trusted news sources?
Make Smart Property Investment a preferred news source on Google.
Click here to add Smart Property Investment as a preferred news source.
