Negative gearing and CGT changes to create increased pressure on renters | ABC NEWS

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[00:00:00]Let's get some more on the housing tax reform element of this federal budget.

[00:00:04]I'm joined now by Dr. Susan Stone, who's the chair of economics at Adelaide University. Susan, thank you so much for your time this morning. Look, we're hearing the words capital gains tax and negative gearing quite a lot this morning. Can you just break down for us simply what these changes are and how significant this budget is on the whole for housing tax reform?

[00:00:29]Yes, good morning, Alyssa.

[00:00:32]They are significant changes. There's no doubt about it. The current system provides very strong incentives for people to invest in residential property either by allowing them to deduct losses on rental property from their personal income, which is negative gearing, and also providing a 50% discount when they do sell the property. And between the two, it made residential property as an investment vehicle very attractive to people. And therefore, we had many people investing in the real estate market. This was always seen to be a bit distortive. It was seen to make too much money going into the residential property and investors having a bit of a cost advantage over owner-occupiers.

[00:01:26]So, the idea of these changes is to try to take away that cost advantage and those incentives from investors.

[00:01:35]So, what impacts you expect these changes to have? Who's going to benefit here and and how quickly?

[00:01:42]Well, we will probably see owner-occupiers as buyers going to see an advantage now because there will be a reduction in interest of people to invest in residential real estate and therefore when you go to an auction or you go to to buy a house you won't have as many competitors on that house which will put less pressure on the price and will make more properties available for owner-occupiers. So owner-occupiers are clearly a winner.

[00:02:16]The The The question is what extent will this have on investors interest in buying real estate including new builds because the capital gains tax will apply even though the negative gearing will still apply to new builds the capital gains tax will still be adjusted by indexation and not the 50%. So will it impact the amount of money that investors are willing to put into new builds and then of course there's the impact on renters because if more property is available to owner-occupiers that by definition means that less property is available to renters. So there is concern that that will put additional pressure on the rental market and raise rents.

[00:03:02]Yeah, that was going to go to one of my next questions. I suppose you know if landlords and and property investors are being hit with changes it's likely to see them arguably slightly worse off.

[00:03:14]Are we likely to see that then passed on to renters who are themselves you know renting as they try to save to break into the housing market themselves? Yes and and and that is concern and whether you think rental crisis the the government has said that it will it won't go up much it'll be about $2 on the median rent across the country $2 a week. Some other experts are saying it could go up as much as 30%. A lot of it will depend on the individual market how tight the individual markets are for renters and how quickly new builds come on board because you know, as I said before negative gearing um will still be allowed on all new builds. So, investors may be, you know, switching to those types of properties. And if they could come on board quickly, especially units or um medium density housing, those are often very attractive to renters. And so, we may see that switch. And we do know that the government has put funds in place to try to move that along and bring um I think it was 65,000 additional houses onto the market over the next few years.

[00:04:28]The Treasurer has said that he doesn't expect house prices to lower as such, but that he does expect that these changes will lead to a slowing in price growth. What do you make of that assessment?

[00:04:40]I I think that's probably correct. We One of the biggest problems with the housing market right now is demand is well above supply. And so, while these tax measures will reduce the demand, it will make some people leave the market, there will still be some investors where buying a residential property still makes financial sense.

[00:05:00]And of course, there are still many um people who want to own and occupy a home that are in the market that haven't been able to do that. So, I do agree that it probably won't, you know, actually lower housing prices, but it will slow the growth.

[00:05:16]Dr. Susan Stoney, thank you so much for your time and analysis this morning.

[00:05:20]Really appreciate it. Thanks for having me.