New tax settings must be offset by greater supply measures

The Federal Government’s national housing plan and the Productivity Commission housing barriers review have been welcomed by a key industry advocacy group.

But the Property Council of Australia cautions that the government’s proposed tax hikes still need to be offset by more radical new supply measures.

The $47 billion Homes for Australia package comes as the government presses ahead changes to capital gains tax and negative gearing settings, now tabled in Parliament.

Property Council chief executive Mike Zorbas said “we welcome the plan as we welcomed the national housing targets because these are the booster rockets of state planning reform”.

This plan comes at a time of profound uncertainty for new projects across the country.

“The government needs the policy courage to monitor the Budget tax hikes and amend them to support the delivery of new homes if the secondary effects are worse than they expect,” Zorbas said.

“If the tabled legislation proceeds, I would say to the Senate that the Government’s safe harbour and grandfathering arrangements for new housing must be protected, because without them the impacts on market confidence and housing supply would surely be even harsher.”

The proposed Productivity Commission inquiry into housing supply barriers, including post-permit approvals, land use and infrastructure constraints is essential, Zorbas added.

Project delays after planning approval has been granted continue to hold back delivery of city assets around the nation.

“Keeping project approvals growing is vital but it is only the first half of the game,” Zorbas said.

“This review can really help us unlock more enabling infrastructure, including better local, environmental and cultural post-permit approval methods and, above all, better coordination with energy and water suppliers so we can move projects from plans to buildings faster.”

Zorbas noted on Budget night that the proposed tax changes were a risk-laden roll of the dice and said early market signs should keep governments alert at every level.

“When war in the Middle East is driving up already high construction costs and when Australia desperately needs more homes, the risk of further uncertainty and falling house prices cannot be underestimated,” Zorbas said.

“Australia already taxes investment in housing harder than any other part of the economy.

“Up to 40 cents in every dollar that buys a new home goes to government taxes and charges across three levels of government.”

Zorbas said changes to negative gearing and capital gains tax must be considered together because of their combined impact on investor behaviour, housing feasibility and market confidence.

“The established housing market and new housing supply are directly connected,” he said.

“If confidence falls in the established market and prices weaken significantly, the feasibility of many new apartment and housing projects will be directly undermined.

“That has direct consequences for future housing supply, rental availability and affordability.”

Zorbas said maintaining a clear and consistent focus on supply will be essential as these reforms move through Parliament and into the market.

“As legislation is considered, it will be important to closely monitor how these settings influence investment decisions, project commencements and activity across housing markets,” he said.

“When all is said and done, the fastest long term guarantee of housing affordability is doubling supply.”