What capital gains and negative gearing changes will do to Queensland housing
David Crisafulli isn’t convinced the federal government’s overhaul of property taxes will cure Queensland’s housing crisis, but economists and leading financial figures predict the changes will be most severe in the Sunshine State.
Negative shifting will be limited to new builds and the capital gains tax concession will be reduced, key pillars of the federal budget aimed directly at improving affordability for first home buyers.
According to property researcher Cotality, high population growth has negatively impacted housing affordability in Queensland; Values in Brisbane have increased by 84 per cent in five years.
The sharp increase is equivalent to adding about $509,000 to a home and compares with a 5.8 per cent increase in earned value in Melbourne over the same period, or about $45,000 in earned value.
According to ABS data released this week, the gap between investors and first home buyers has widened during this period. About 41 percent of all loans were made to investors in the March quarter, closely mirroring the national average; Loans to first home buyers fell to 16 per cent, around 1.5 per cent below the national figure.
The Albanian government’s divisive changes to negative gearing and capital gains are aimed at improving affordability by encouraging investment in new buildings and allowing first home buyers and homeowners to better compete with investors.
But Prime Minister David Crisafulli said he had doubts about the changes, which his federal LNP counterpart Angus Taylor had promised to repeal if the Coalition formed government.
“I would like to see modeling,” Crisafulli told reporters on Friday.
“Any change in tax…of course it has to be about stimulating supply, because if you’re not encouraging people to increase supply then no change in tax is going to deliver what you want, and that is a young person’s ability to own a home.”
Experts argue that the impacts will be significant but disagree on the effectiveness of reforms to cure the problem.
Independent economist Saul Eslake said one problem with housing trends in Queensland was that more than 80 per cent of the money given to investors was used to buy established homes rather than new builds.
“This does nothing to increase the housing supply because housing is already available,” he said in this tagline.
“What it does is put further upward pressure on the prices of homes that already exist; if investors didn’t do this then there would be less demand for those properties.
“Secondly, by definition, when an investor buys an established property, they are offering more to people who might own one or more properties, thereby ultimately increasing the demand for rental housing because every time an investor buys a house or apartment that already exists, it is a house or apartment that someone who wants to own cannot afford.”
Eslake says these changes disprove claims that they will only lead to further compression in the rental market, as ideally middle-income workers will be able to buy their own homes rather than compete for rent.
“People seem to have trouble grasping this,” the respected economist said.
But senior fund manager Geoff WilsonThe founder of Wilson Asset Management said the high adoption rate of negative gearing in Queensland meant investors were more likely to abandon the market, leading to prices falling.
About 80 per cent of investors in Queensland use negative gearing, compared to 50 per cent nationally, according to industry lobby Property Council.
“It will likely have a significantly higher impact on the Queensland property market than other state property markets,” he said.
Cotality head of research Gerard Burg said Queensland’s extraordinary price rise was driven by the imbalance between supply and demand that tax reforms aim to correct.
“Queensland has led the population growth nationwide by one state, and that’s really tightened the market tremendously,” he said.
“People are looking to put a roof over their heads, but investors are also seeing this as a huge opportunity at a time when demand for properties is high and values are rising rapidly, and investors are jumping in to get their share of that.
“When we look at the changes, what this really does is shift the focus of where investors are concentrated, thereby significantly reducing the incentives to invest in existing stock.
“But the fact that negative gearing will be maintained for new-build homes suggests there may be some incentive there.”
Start your day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.
James Hall is News Director of the Brisbane Times. He is a former Queensland correspondent for The Australian Financial Review and specializes in political and financial reporting, having reported for a variety of headlines across the country.Connect with: X or email.
