Property experts say the generational tax changes in Jim Chalmers’ budget, although well intended, will do little to address the most pressing crisis confronting Victoria’s moribund housing market – the prohibitive cost of building homes.
They warn that unless the Victorian government lightens its burden on property, the changes to negative gearing and capital gains could result in an exodus of would-be investors and the construction of even fewer new homes.
Chalmers describes his reforms, which end negative gearing on existing properties and change the formula used to tax capital gains, as “the most significant transformation of Australia’s tax system” since the turn of the century.
Charter Keck Cramer executive director Richard Temlett, a leading property market analyst, says while there is “real merit” to the changes, Victoria’s most acute problem is not the cost of buying a home but the cost of getting a new one built.
The federal government’s decision to leave negative gearing in place for new residential properties is designed to shift investment from well-established bricks and mortar to tomorrow’s homes. Temlett and Urban Development Institute of Australia president Oscar Stanley says for this to happen, the state must play its part, starting with scrapping the impost on overseas investors introduced at the start of the Andrews government.
“The reality is we have a cost of delivery crisis right now,” Temlett says. “Unless additional charges on foreign investors or other taxes are reduced, I don’t see it [the budget] having a material impact.”
He says that if Victoria changed its settings to encourage greater investment in new property, it could produce a “major rebalancing” of the housing market, with more institutional and developer backing for large-scale, build-to-rent projects. He wants the federal government to use the revenue it raises from its tax changes to help the states transition from stamp duty to a more efficient, land tax regime.
“It is good that the federal government is starting to address these bigger challenges, but the state needs to come to the table and send the signal that Victoria is open for business. More needs to be done right now.”
Stanley is concerned that, unless something is done to kick-start the supply of new housing in Melbourne, the negative gearing changes will lead to fewer rental properties, higher rents and would-be first home buyers having to wait longer to save a deposit.
“My concern is that less supply means that in the medium and long term, we are disadvantaging the people we are trying to support,” he said.
“I am genuinely concerned that we are increasing taxation on housing in a housing crisis. It is crazy.”
The budget papers dismiss this risk. “The impact on housing supply from these tax measures will be more than offset by measures that increase housing supply,” they note.
The Victorian government is about 25,000 new homes short of its annual target of 80,000, with dwelling completions last year falling to an 11-year low and one in four large construction companies reporting financial losses. Global institutional investment in the Victorian housing market has halved since 2022 and Melbourne’s property prices over the past five years have grown the slowest of any Australian capital city.
The federal budget is otherwise generous to Victoria and its Labor government seeking an historic fourth consecutive term at November’s state election.
The $3.8 billion in new money for Jacinta Allan’s signature project, the Suburban Rail Loop, is the federal government’s largest new investment in a major transport project anywhere in Australia.
The government also found more money to combat transnational and organised crime, including $14 million to be shared between the states to stop the flow of illegal tobacco and arson attacks on hospitality businesses in Melbourne.
Victoria’s $31.57 billion GST receipts for next financial year are the largest in the nation – to the chagrin of the more populous NSW – and stay that way throughout the forecast years.
The Victorian division of the Property Council of Australia, like Temlett and Stanley, want the land tax surcharge for global institutional investors scrapped as the first step towards restoring the financial viability of housing construction, followed by the windfall gains tax.
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