Key Points:
- Treasurer Jim Chalmers plans to scrap negative gearing for established homes and cut the capital gains tax discount.
- Property experts warn these tax changes will fail to boost housing supply and might drive investors away.
- Economic modeling predicts the proposed policy will result in 22,700 fewer new homes built over 5 years.
- Prime Minister Anthony Albanese defended the broken promises as necessary actions to fix worsening housing affordability.
Treasurer Jim Chalmers expects to break 2 major pre-election promises in his highly anticipated Tuesday budget. The Labor government plans to scrap negative gearing for existing homes and heavily reduce the capital gains tax discount. Real estate industry leaders immediately criticized the political strategy. They firmly claim these major tax changes will completely fail to increase the national housing supply.
The government plans to restrict negative gearing solely to newly built homes starting on budget night. Current property investors who already hold negatively geared assets will keep their tax breaks under a grandfather clause. However, any investor who buys an established home after the budget drops will lose the ability to deduct their financial losses against their personal income.
Mike Zorbas serves as the chief executive of the Property Council of Australia. He strongly pushed back against the government plan ahead of the budget release. Zorbas stated that rolling back negative gearing will not achieve the ultimate goal of boosting housing supply. He argued that the real estate market desperately needs more actual homes, not political tax adjustments.
Zorbas highlighted that extensive economic research proves the government policy will fail. His organization worked directly with the Housing Industry Association and the Master Builders Association to analyze the numbers. Their joint economic modeling shows absolutely 0 increase in housing supply resulting from changes to negative gearing rules.
Solving the Australian housing crisis requires developers to build more properties, Zorbas explained. He doubted that changing the tax rules for existing properties would help builders create new ones. He warned that changing the negative gearing ratings on existing homes adds exactly 0 new units to the rental market.
The property chief also expressed deep concern for future construction projects. He pointed out that the new housing supply represents the most vulnerable part of the real estate market right now. Builders desperately need property investors to invest in new apartment buildings to keep construction projects moving forward.
Jocelyn Martin, the managing director of the Housing Industry Association, fully supported Zorbas’s arguments. She appeared on television to discuss the budget and firmly rejected the government’s strategy. Martin stated that altering tax laws will actually have a slightly negative impact on the overall housing supply.
Martin questioned why the Labor Party chose to introduce these complex tax changes right now. She argued the government should instead focus all its energy on removing physical and bureaucratic barriers that stop builders from creating new homes. She believes changing tax laws distracts from the core issue of construction delays.
Property investors currently purchase 40% of all new house-and-land packages for the rental market, Martin noted. She warned that making sudden adjustments to the investment rules will force these buyers to put their money somewhere else. Losing these crucial investors will destroy rental availability and make renting even less affordable for everyday tenants.
The Housing Industry Association released specific numbers over the weekend to back up their warnings. They cited detailed modeling by Qaive and Tulipwood Economics. This research predicts that the country will see 22,700 fewer new homes built over the next 5 years if the government restricts negative gearing to new builds only.
The same economic report outlined broader negative consequences for the national economy. A massive drop in new home construction will actively reduce the gross domestic product. It will also destroy jobs in the construction sector and force average rents even higher across the entire country.
Despite the intense industry backlash, Prime Minister Anthony Albanese stood by his upcoming budget decisions. He addressed the broken election promises directly during a radio interview on Monday morning. He defended his choices by explaining that leaders must make difficult choices when economic circumstances change. Albanese pointed out that housing affordability continues to deteriorate rapidly across the entire country. He believes the government must pull every possible lever to tackle the growing divide between wealthy older property owners and struggling younger citizens. He stated that simply sitting back and watching the affordability crisis unfold represents the easy path, and his team chose to take difficult but necessary action to deliver real policy changes.
