Housing crisis needs more supply, not more taxes

The familiar sound of calling for changes to Australia’s Capital Gains Tax (CGT) relief is growing in volume again; The Senate Select Committee on the Operation of the Capital Gains Deduction will likely recommend a reduction in the deduction that translates into higher taxes.

Judging by the government’s press coverage, a reduction from the current 50 percent reduction seems almost inevitable. We don’t know its extent, but it’s possible it’s limited to residential properties.

The government is talking about intergenerational equality and is particularly focused on making housing affordable for the next generation of homeowners.

These are important demands, but the illusion that increasing taxes on investors will free up supply or lower prices is simply misleading.

Data from leading industry analysts such as PropTrack and Cotality tells us that investor activity is primarily a response to our tight rental market and not the root cause of unaffordability.

In many parts of Australia, rental vacancy rates are at or near historic lows, meaning higher rental prices.

What will reduce rents is a greater supply of rental properties, not less. You cannot solve the supply problem by punishing those who provide houses for rent.

The push for CGT changes is fundamentally based on the premise that a higher tax burden will lead to a more affordable housing market, as it will reduce investors’ appetite for property, allowing more homeowners to enter the market.

But even the Grattan Institute, hardly a pro-investor lobby, conceded that such a change would reduce house prices by only 1 percent.

The real drivers of price growth are much more fundamental; The undeniable imbalance between supply and demand.

Homes won’t suddenly become more affordable because investors will have to pay a higher rate of tax when they make a profit on the sale. The result will likely be the opposite of what was intended.

For the vast majority of investors, real estate is not a get-rich-quick scheme; It is a long-term wealth building strategy.

Treasury research shows property investors are long-term owners. WA Treasury’s comments indicate that residential investment properties in WA are predominantly held long-term, not bought and sold frequently.

The NSW Treasury goes into more detail and the average holding period for investors is 13.7 years.

This is a clear indication that most property owners are long-term asset owners. So what happens when you hit them with a higher CGT? You are not encouraging more sales.

You encourage investors to hold on to their property longer to avoid paying a higher tax when exiting the asset.

Some investors have already informed me that they will hold on to their property until retirement and sell it when they enter a much lower tax bracket.

Australian property owners currently pay around $67 billion a year through stamp duty, land tax and capital gains tax alone. This asset class is already paying more than its fair share.

We have a clear and urgent goal to build 1.2 million homes within five years. If we are truly serious about intergenerational equity and enabling more people to own homes, we need to focus on supply-side solutions.

This means overcoming planning bottlenecks, addressing infrastructure shortcomings and labor shortages, particularly in the construction industry.

Increasing a tax that affects long-term investors, whose role is often to meet rental demand when supply is scarce, is simply a distraction from the real work that needs to be done.

Let’s stop talking about punishing property owners and start talking about how to get more homes built. This is the only path to true housing affordability.