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{{propApi.successMessage}} {{region}} Change locationHousing shortage to get worse
Housing shortage to get worse
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The Government’s own Budget papers admit that changes to negative gearing and capital gains tax will reduce the supply of new housing by around 35,000 homes over the next decade.
HIA Chief Economist Tim Reardon said the Budget was attempting to solve a housing shortage by discouraging the investment needed to build more homes.
“Australia’s housing challenge is simple. Consider it as if we are trying to fit 11 million households into around 10 million homes,” said Mr Reardon.
“The solution to a housing shortage is to build more homes. This Budget does the opposite.”
From 1 July 2027, negative gearing for residential property will be limited to new builds, while the 50 per cent capital gains tax discount will be replaced with cost base indexation and a 30 per cent minimum tax rate on capital gains.
Treasury estimates the reforms will support around 75,000 additional owner occupiers over the next decade, but at the cost of reducing the supply of new homes.
“The Government is stopping 35,000 private homes from being built in order to raise enough revenue to build around 4,000 public homes,” said Mr Reardon.
“That is a terrible trade-off in the middle of a housing crisis.”
Mr Reardon said the reforms misunderstood how housing investment supports new home building.
“Investors are critical to funding new housing supply and commenced around half of all new home builds in the past,” he said.
“If investors leave the housing market, fewer projects proceed and fewer homes get built.
“The Government assumes investors will simply redirect their money into new homes, but housing investment doesn’t work like that.
“If the overall attractiveness of residential investment falls, fewer investors participate overall.”
HIA welcomed the Budget’s additional $2 billion investment in housing-enabling infrastructure, including water, sewerage and roads, intended to unlock up to 65,000 homes.
“These infrastructure investments are important because the industry desperately needs more shovel-ready land,” said Mr Reardon.
“But infrastructure and planning reform take years to deliver new homes. The adverse tax changes hit the market confidence immediately.”
Mr Reardon said the tax changes risk worsening rental affordability over time by reducing the supply of future rental housing.
“At a time when vacancy rates remain critically low, reducing the number of investor-funded homes being built will inevitably place upward pressure on rents,” he said.
“The Government deserves credit for recognising that infrastructure, planning and approvals are barriers to supply.
“But you cannot tax your way out of a housing shortage.
“The only lasting solution to housing affordability is more homes.”
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