Housing supply crisis needs more Budget attention

EVIDENCE presented to the Select Committee Inquiry on the operation of the Capital Gains Tax Discount made it clear that the driver of Australia’s housing affordability and rental crisis is not investors but a lack of housing supply.

This is the view of the Housing Industry of Australia, which said the lack of housing supply was the fundamental issue for Australians.

“The Committee heard from a wide range of experts and while there were competing views on current taxation settings, the underlying theme from all representations to the Inquiry was that addressing the structural barriers to boost housing supply is the real issue,” said HIA managing director Jocelyn Martin.   

“Therefore, the priority for governments must be to pull out all stops to support new home building.

“This involves focussing on the cost of development and reducing taxes on home building – not increasing them.

“Proposals for increasing Capital Gains Tax or winding back negative gearing in the May budget point this conversation in completely the wrong direction and only serve to constrain home building and affordability further.

“Australia is in the midst of a housing and rental crisis, with rental vacancy rates across the country barely above one per cent.

“Taxing those investors who fund the development of more rental housing being built only worsens housing affordability for everyone, including the large and growing pool of renters that depend on these properties.”

Martin noted the acknowledgement by both major parties of the central role that lack of adequate housing supply is playing in the housing crisis.

The Liberal Party’s dissenting report stated: “Taxing housing more will lead to fewer houses, not more. In a housing supply crisis, we need to be looking to reduce the tax burden across the housing sector to increase the viability and economics of all types of housing.” 

Likewise, additional comments from Labor Senators recognised the role of supply and that tax policy should not be viewed in isolation:

“The committee heard consistently that housing outcomes are shaped by a range of structural factors, with housing supply playing a central role in determining long-term affordability. Planning systems, infrastructure provision, and construction capacity influence the ability of the housing market to respond to demand. Tax policy should therefore be considered as one element within a broader housing policy framework.” 

The 2010 Henry Tax Review cautioned against tinkering with rental property tax settings in a supply-constrained market, as it could reduce investment and place further strain on supply.

Fast forward to today and those findings from the Henry Tax Review should sound the alarm bells for the Treasurer ahead of this year’s budget.

“With a fresh interest rate rise, increasing global uncertainty and fuel and energy concerns, governments at all levels must consider how they can help reduce the cost of home building and increase supply, not look to tax it more,” Martin said.