The Housing Industry Association (HIA) recently said that it believed this was not the appropriate time in the housing cycle to increase Capital Gains Tax (CGT), considering the declining home values and building activity.
The industry group believed that hiking the tax will lead to lower investment in housing, fewer houses being constructed and, eventually, worsening affordability.
“We cannot tax our way out of the housing affordability problem. The solution is less tax on housing and less government distortions on the market, not more,” said HIA’s Principal Economist, Tim Reardon.
The Centre for International Economics (CIE) predicted that an increase in CGT will slash $1 billion from revenue to state Governments. The CIE also suggested that it will push renting cost higher and, as mentioned, worsen housing affordability.
Worth noting from the study was the generation of a revenue gain for the Federal Government of $0.5bn a year, should an increase in CGT happen. However, these returns would be dwarfed by stamp duty tax losses to the states in excess of $1bn per year.
Reardon also highlighted that while hiking the tax on rental homes may benefit first home buyers at the start, the gain will inevitably turn into losses as rise of rental costs lead to higher home prices. Consequently, first home buyers are likely to be priced out of the market.
The report also revealed that grandfathering existing investment properties out of the CGT changes would amplify issues in supply, as well as affordability.
“Grandfathering reduces revenue from Stamp Duty to the States by reducing the number of homes built, and delays the inflow of additional CGT revenue to the Federal Government for decades.”
In the end, Reardon held on to the idea that providing adequate supply will reduce problems in affordability.
“The RBA, Productivity Commission, Federal and State Treasurers have all identified the constraints on the supply of housing as an underlying cause of housing affordability challenge.”
“Addressing affordability requires coordinated effort by all tiers of government to allow the industry to respond with the type and location of housing required to satisfy the pent-up demand,” he concluded.
