The Albanese government is preparing to unveil a budget that will recast housing as shelter \u2013 rather than a financial tool \u2013 in changes that have already sparked heated warnings that rents will rocket and housing supply will be curtailed.<\/p>\n
Those warnings are best ignored.<\/p>\n
It is now clear that Labor will usher in changes to negative gearing and capital gains tax designed to make property less attractive to new investors.<\/p>\n
The government will have ample protection for existing property investors, known as grandfather provisions, which will give it some protection from a political backlash as it transitions Australia away from an unfair system without burning it to the ground.<\/p>\n
To be clear, if the anticipated changed settings \u2013 a clampdown on negative gearing for future purchases and a less generous CGT discount \u2013 means a property is no longer attractive to prospective investors, that\u2019s not a bad thing.<\/p>\n
Course correction<\/p>\n
Since 2020, investors have increased their share of new home loans from less than 30% to more than 40%, according to Australian Bureau of Statistics data, while owner-occupier levels have fallen.<\/p>\n
This is part of a long-term trend, given that the proportion of housing stock owned by investors has been rising for decades.<\/p>\n
Graph showing increase in investors’ share of new home loans, from about 24% in 2020 to 40% of new home loans at present<\/a><\/p>\n Traditionally, investors pursued different types of properties to owner-occupiers, but the tax incentives \u2013 including the Howard era 50% CGT discount \u2013 have been so good that the distinction has narrowed.<\/p>\n That has pitted investors against owner-occupiers across the country.<\/p>\n Michael Fotheringham, the managing director of the Australian Housing<\/a> and Urban Research Institute, puts it this way: \u201cIt has become easier to buy a second, third or fourth home than it is to buy your first home \u2013 that\u2019s a problematic policy setting.\u201d<\/p>\n The favourable arrangements have allowed investors to overpay for properties in the knowledge they\u2019ll use negative gearing to their advantage, before richly profiting upon sale, backed by a generous CGT discount.<\/p>\n Sign up for the Breaking News Australia email<\/a><\/p>\n This rewards poor decision-making by allowing the investor to recoup their overspend through tax deductions, insulating them from the consequences of paying too much for something.<\/p>\n While Australia\u2019s housing crunch has been exacerbated by housing shortages and poor planning by a string of state and federal governments, the favourable tax settings for investors has made it worse.<\/p>\n Predictions of a market collapse or explosion in rents stemming from the budget reforms rely on an assumption that there will be a mass exodus of investors.<\/p>\n In reality, any divestment \u2013 if indeed the new policies cause divestment \u2013 simply means the properties will be put up for sale and bought by another investor or an owner-occupier.<\/p>\n There is no loss of housing stock, and one more renter may just find a permanent home.<\/p>\n Given new-built properties acquired after budget night are set to be exempt from the tax changes, any warnings about impacts on supply are largely moot. If anything, investors may be more enthused to support new builds than they were previously.<\/p>\n Labor\u2019s anticipated changes are not a panacea, and more supply is critical, however the reforms will gently push Australia on to a more equitable trajectory.<\/p>\n Unfounded fears<\/p>\n Political reforms are usually met with dire warnings that do not come to pass, with Victoria a prime example.<\/p>\n In 2023, Daniel Andrews<\/a> lumped the state\u2019s 860,000 property investors with an extra $1,300 a year of land tax, on average, for Victoria\u2019s Covid debt repayment plan.<\/p>\n Landlords complained and the Property Council of Australia warned rental supply could fall and push rents up.<\/p>\n