The Housing Industry Association (HIA) has launched a preemptive attack on moves to curb investor tax concessions, such as negative gearing and the 50% capital gains tax (CGT) discount.
Chief economist Tim Reardon claimed that “investors are vital to the goal of increasing housing stock”, claiming that “investors typically supply around a third of all new homes built in Australia but are a larger share of the market at present due to a lower level of activity from owner occupiers”.
Now, I would buy the HIA’s argument if it were arguing to maintain negative gearing and/or the 50% CGT discount for newly constructed dwellings to incentivise supply. Such a policy would be similar to what Labor took unsuccessfully to the 2016 and 2019 federal elections.
The problem is, Tim Reardon opposed that policy as well, arguing in December 2018 that any increase in taxes for investors would drive up rents:
“The impact on renters is quite simple, if you increase the tax on investors, those costs will be passed through to renters… The proposed changes are estimated to raise an extra $500 million in tax revenue per year for the federal government, so the cost of that will be shared among renters”…
Reardon continues to claim that tax concessions should remain for investment into established homes, which does not lift supply:
“Investors also accessed around a third of all loans for the purchase of an established home over the past six years… Increasing taxes on investors, even when targeted at the established market, does not lead to an increase in home supply”.
The reality is that there is zero evidence that increasing taxes on property investment (or reducing concessions) harms rental supply.
Victoria has implemented punitive land taxes on investment properties as well as relatively draconian regulations. This has seen the share of investors plummet and the total number of rental bonds fall.
Chart by Cotality
At the same time, the share of loans going to first home buyers in Victoria has surged:
Chart by Cotality
Meanwhile, annual rental growth has been weakest in Melbourne, despite the exodus of investors:
Source: Cotality
In short, the empirical data do not support the HIA’s scaremongering on changes to property tax concessions.
