PM Albanese Weighs Housing Supply Over Gearing Reforms
Prime Minister Anthony Albanese appears to have cooled on the idea of revisiting negative gearing policies after initially leaving the door open. The PM’s concern is that changes to negative gearing could restrict housing supply, although research suggests that it might improve affordability despite a slight hit to supply. In this article, we’ll explore the complexities and considerations surrounding negative gearing, its potential impacts on housing supply and affordability, and what this means for the Australian housing market.
What is Negative Gearing?
Negative gearing allows investors to deduct rental property losses from their taxable income. This tax incentive aims to encourage investment in rental properties but has sparked debate over its impact on housing affordability and supply.
Critics argue that negative gearing inflates housing prices and favours wealthy investors, making it harder for first-time buyers to enter the market. Proponents claim it boosts housing supply by encouraging investment in new builds.
PM’s Concerns on Housing Supply
Initially, PM Albanese did not deny reports that Treasury was asked to explore options for changing the tax treatment of investment properties. This left the door open for potential policy revisions. However, the PM later expressed concerns that altering negative gearing would reduce housing supply. Modelling from the property lobby indicated that less generous tax arrangements might lead to fewer new housing developments.
The Property Council commissioned Deloitte to assess Labor’s 2019 election policy. The study found that changing negative gearing would slightly reduce housing supply but significantly impact investor demand, potentially making housing more affordable.
Balancing Supply and Affordability
According to Deloitte, Labor’s policy would reduce housing supply by 0.4% over a decade, with most of the impact from changes to capital gains tax (CGT). However, housing affordability would improve as demand from investors would drop significantly.
Brendan Coates from the Grattan Institute argues that reforms to negative gearing and CGT could be the most effective measures to improve homeownership. Changes could lead to a 4.6% reduction in house prices over a decade. A 2023 study by Michael Warlters from the NSW Treasury found that negative gearing changes could increase long-term homeownership rates by 6.6%, shifting properties from investors to owner-occupiers.
Impact on Housing Prices and Rents
Mr Coates believes any impact on housing prices and supply would be small. He emphasises that planning restrictions, rather than investor tax concessions, are the primary cause of affordability issues.
Both Deloitte and Grattan research indicate that negative gearing changes would have a modest impact on rents, with a predicted increase of 0.5% over a decade. Any rent increases would be offset by a corresponding reduction in the number of renters.
Government’s Position
Despite initial openness to revisiting negative gearing, PM Albanese now emphasises that there are no plans to change the policy. He stresses the need to focus on building more homes to address housing supply issues.
Some experts and organisations continue to advocate for reforms to negative gearing and CGT, arguing that these changes would improve housing affordability and boost homeownership rates.
Source
Explore more entrepreneurial insights and success stories at Inspirepreneur, your go-to magazine for business innovation and leadership.
