Experts and industry watchers are flagging several risks that could ensue should the Australian Labor Party successfully lobby for changes to negative gearing and capital gains tax — something many Australians do not have a deep understanding of.
The Housing Industry Association recently conducted a survey and found that Australians do not know much about Labor Party’s plans. Only 34% know about Labor’s proposal. 74% agree that it should be examined before changing the policy.
This research shows how popular these changes among all political parties. Graham Wolfe (HIA managing director) stated that Australians were being asked if they would like to choose a policy that would directly hurt them, without understanding the implications or goals.
Dominique Grubisa, founder of DG Institute and CEO, stated that there could be a “day-to- reckoning”, which could have an impact not only on the housing market but also on the wider economy.
Negative gearing can have a negative impact on rents. The HIA survey found that 52% of Australians think rents will rise as a result of the changes.
If there is no new housing investment, rents will increase. Renting a house will be more costly. Wolfe explained that renters would need to save more money to buy a house if the rents increase.
SQM Research also released a report which found that renters in Brisbane could have to pay an extra $5,000 annually if they are unable to obtain negative financing. Similar scenarios could occur in other capital cities. Rent prices in Perth and Adelaide could rise by 20% and 15%, respectively. Renters in Sydney and Canberra could see a 10% increase in their rents if this policy is abandoned.
Negative gearing can cause further declines of house values and rents. It could also lead to a mass exodus from Australia of investors.
“If people don’t get tax benefits from investing in property, they’ll look elsewhere. If it changes, I think people will sell up their properties, and new investors won’t be incentivised to come in,” Grubisa said.
Laurence Troy from the University of New South Wales’ City Futures Research Centre stated that residential construction projects will decline if prices continue falling.
“We are witnessing that as a property’s value drops, so does the desire to have it built. It was rampant price growth that underpinned developers’ activity to add supply, not a desire to make housing more affordable,” he told News.com.au.
Master Builders Australia CEO Denita Wawn stated that negative gearing will not increase the supply or decrease new projects but would rather lower it.
“The context of Labor’s policies, namely an ‘overheated’ housing market, no longer exists, bringing into question the need for reforms to curb investor activity. Master Builders requested that the ALP reconsider its policies in light of new research and a changing housing market.” She stated to News.com.au.