‘Lost that race’: Albanese’s move to curb negative gearing criticised amid housing shortage fears

Key Concepts

• Negative Gearing: A tax strategy where an investor’s rental property expenses (interest, maintenance, etc.) exceed the rental income, allowing the loss to be deducted against other taxable income.
• Capital Gains Tax (CGT) Discount: A tax concession that reduces the amount of capital gain subject to tax if an asset is held for more than 12 months.
• Housing Supply: The total number of available residential properties; the central focus of the debate regarding affordability.
• Build-to-Rent (BTR): A model where large-scale institutional investors build and manage properties specifically for long-term rental, common in Europe but underdeveloped in Australia.
• Housing Accord: A government initiative aiming to facilitate the construction of 1.2 million new homes over five years.
• Zoning Reform: Changes to land-use regulations intended to increase the density and speed of housing development.

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1. The Debate on Tax Reform and Housing Supply

The core of the discussion revolves around whether modifying negative gearing and CGT will alleviate or exacerbate Australia’s housing crisis.

• Industry Perspective: Representatives from the Housing Industry Association (HIA) and property economists argue that tax changes will not increase supply. They contend that current modeling shows no positive impact on new construction and that such changes could discourage "mum and dad" investors, who currently purchase 40% of new house-and-land packages.
• Government Stance: Despite previous election promises to keep negative gearing "off the table," the government is under pressure to address intergenerational inequity. Proponents of reform, such as ACOSS, argue that phasing out these tax breaks could free up existing housing for first-time buyers and shift investment toward more stable, large-scale "build-to-rent" models.

2. Structural Challenges and Data

• Supply Deficit: Australia is currently lagging behind other advanced economies, providing approximately 400 homes per 1,000 people, compared to 500 per 1,000 in many European nations.
• The 1.2 Million Home Target: The government’s goal to build 1.2 million homes is currently projected to slip into the mid-2030s. Industry experts warn that tax uncertainty will likely push this timeline further out.
• Profitability Threshold: A significant barrier to supply is the cost of construction; developers reportedly struggle to turn a profit on new builds unless the end price is approximately $1.5 million in major capital cities.

3. Historical Context and Real-World Applications

• The 1985 Precedent: Panelists noted that when Paul Keating attempted to change negative gearing in 1985, the policy was reversed after two years due to a resulting rental crisis in Sydney and Perth.
• The "Bill Shorten" Factor: The political risk of these policies is highlighted by the 2019 election, where the Labor Party’s platform included changes to negative gearing and CGT, which was perceived as a contributing factor to their electoral loss.

4. The Role of Migration and Demand

A contentious point of debate is the impact of immigration on housing demand.

• Argument for Supply-Demand Link: Critics of current policy argue that bringing in 400,000+ people annually without a commensurate increase in infrastructure (schools, hospitals, housing) inevitably drives up prices and displaces local residents.
• Counter-Argument: Others argue that migration is not the primary driver of the crisis, citing evidence that during the COVID-19 pandemic, when 100,000 people left Australia, housing prices still rose by 20%, suggesting that the issue is structural supply rather than population growth.

5. Synthesis and Conclusion

The discussion concludes that there is no "silver bullet" for the housing crisis. While tax reform is being considered as a tool for equity, the consensus among industry experts is that the focus must remain on supply-side reform.

Key Takeaways:

• Taxation vs. Supply: There is little evidence that tax changes will stimulate new housing supply; there is a risk they may reduce it by driving away private investors.
• Institutional Shift: There is a recognized need to move toward institutional "build-to-rent" models to provide long-term security for renters, moving away from the current reliance on small-scale, short-term private investors.
• Structural Barriers: The real crisis is rooted in high construction costs, zoning restrictions, and a long-term failure to keep pace with population growth, which cannot be solved by tax adjustments alone.