The elimination of federal budget negative gearing and changes to capital gains tax (CGT) have dampened investor demand for residential property and sent the market into a broad-based correction.
The property industry is clearly worried, with backlash continuing 10 weeks after the budget changes.
A survey of 265 industry professionals by the Australian Property Institute named Labor’s budget tax changes as the biggest driver of falling home values, ahead of three interest rate hikes by the Reserve Bank of Australia (RBA) this year.
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Property prices across the country have fallen, and capital city auction clearance rates have remained below 50% for eight consecutive weeks in the wake of the announcement.
Treasury modeling released as part of the Budget changes suggested negative gearing and changes to CGT would reduce house prices by just 2 per cent. “More than a few years of no change in tax policy.”Mainly by reducing investor demand for established properties.
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However, Sherman Chan, API’s chief economist, told Sky News that the Federal Budget contained misleading estimates that tax changes would slow house price growth.
“When the government announced changes to CGT and negative gearing, it was based on a number of assumptions”, he said.
“We have now surveyed the property valuers to see what they are seeing on the ground… and it has been found that it is not going according to the government’s plan”.
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Chan argued that the tax changes were hurting the housing market more than the RBA’s three rate hikes.
“The interest rate front definitely affects the property sector across various asset classes, not just housing, but also industrial, agricultural, office, retail,” he said. he said.
“But at the moment, for the housing market, it’s the government’s tax reforms that have really shaken the coffers and people are still digesting what the implications are and people are evaluating their options”.
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“That’s why from our survey, what we found is that downward pressure on property prices is the most chosen reason”.
The reality is that Australian housing has become too expensive and far beyond the ability of households to pay.
Chart by Shane Oliver (AMP)
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Although the industry may not like it, this is the housing reform Australia needs to do.
Ultimately, if housing is to become more affordable, prices must return to a level people can afford.
