A week on from the passage of the most recent Federal tax hikes, housing peak bodies have united to issue a warning that proposed changes to capital gains tax (CGT), negative gearing and Self-Managed Super Fund (SMSF) investment rules will reduce housing supply, increase rents and make it harder to deliver the homes Australia needs.

Proposed tax changes disincentivise investment in existing rental housing and shrink supply. At the same time, new homes are more expensive to build than existing dwellings, meaning any slowdown in investment is likely to place further upward pressure on rents.

UDIA National President, Oscar Stanley, said extensive engagement with developers, financiers, mortgage brokers, commercial finance specialists and property professionals across Australia, has delivered a clear message – the removal of SMSF investment from the new housing market will make it harder to finance residential developments and result in fewer homes being built.

“The housing industry has spoken with one voice today," Mr Stanley said. "This policy will make it harder to fund new housing and will ultimately reduce supply."

HIA Chief Executive Industry & Policy, Simon Croft, said that at a minimum, the changes should be amended to preserve the ability of SMSFs to support new housing supply, consistent with the broader objectives of increasing housing availability.

“The Government has already acknowledged that its Budget housing tax changes will reduce supply by around 35,000 homes over the next decade,” Mr Croft said. “It is concerning that further restrictions on private capital have been introduced without any public assessment of the additional impact on housing supply. Apartment developments rely on meeting pre-sale thresholds, and SMSF investors play a critical role in getting these projects out of the ground.”

Chief Executive of the Property Council of Australia, Mike Zorbas, said: “New housing supply is king. Construction and capital costs already prevent new projects taking flight.

“Changes to SMSFs are the latest handbrake on investment nobody asked for at the same time as trust tax hikes suck the certainty out of new business and hiring decisions for a substantial part of the sector.”

Treasury's own Budget estimates show the proposed tax changes would result in fewer homes being built over the next decade. The impact will be significantly worse if SMSFs are prevented from investing in residential property.

SMSF investment is critical to the viability of many new housing developments, with at least 30 per cent of apartment project pre-sales typically coming from SMSF investors. SMSF investment in new housing is a lynchpin for project pre-sales. Every investor helps deliver more homes for Australians. Removing this source of investment would make it even harder to get new housing projects off the ground.

The industry believes more supply, not additional taxes, is the key to solving the housing challenge.

The peak bodies are calling on the Government to:

• Consult closely with industry on rules defining the impact of the negative gearing, CGT and SMSF changes to avoid unintended and unworkable outcomes;
• Review the impact of the combined changes with a view to further fixes if the downside exceeds Treasury modelling;
• Allow SMSFs to continue to invest in new residential housing; and
• Prioritise policies to accelerate delivery of rental housing and increase housing supply.

Mr Stanley said that Australia was in the grip of a housing supply crisis.

“Every policy should be working to increase the number of homes we build, not unintentionally reducing them," he added.