The Housing Industry Association (HIA) has penned another media release decrying Labor’s planned reforms to negative gearing and the capital gains tax (CGT) discount, while talking-up the need for supply-side reforms:
The housing affordability problem in Australia has caused unnecessary constraints on home building which has prevented sufficient houses to be built to meet the demand of growing cities. Principle Economist for HIA Tim Reardon said today.
“Increasing the tax burden on housing is not the solution to increasing the supply of housing, Mr Reardon said.
“Any new taxes or changes to negative gearing will exacerbate the affordability challenge by discouraging investment in new housing, force up the cost of renting and make it harder for first home buyers and renters to get into a home.
“Increasing taxes on housing through additional stamp duty, means testing negative gearing or increasing capital gains tax, will create additional barriers to investing in residential property and so supply will fall.
“If the supply of housing falls further the cost of housing will increase for both renters and owner occupiers, further exacerbating the affordability challenge.
“Increasing the supply of housing is the key to addressing affordability. This involves adequate release of land for new dwellings including increasing the density of housing in metropolitan areas.
“Increasing the tax imposed on rental housing at a time when there is inadequate supply of rental accommodation will drive up rental prices further making it increasingly difficult for first home buyers to save a deposit.
Let me be clear: I agree with the HIA that supply-side barriers preventing affordable housing need to be addressed.
Nevertheless, the HIA’s continued opposition to Labor’s policies to cool housing demand – including restricting negative gearing to new dwellings and unwinding the CGT discount – makes no sense and reeks of self interest.
There are two sides to the housing market: a demand-side and a supply-side. And economics 101 says that housing affordability can only be improved by focusing on both sides of the housing equation. This necessarily means implementing the above reforms (including those espoused by the HIA), as well as cutting immigration back to sensible and sustainable levels and extending anti-money laundering rules to real estate gatekeepers.
None of this is rocket science.
With regards to Labor’s negative gearing policy, Blind Freddy can see that investment in existing dwellings has literally exploded since negative gearing was reinstated in 1987, followed by the halving of CGT in 1999. By contrast, investment in new dwelling construction – which is the supply that the HIA bemoans is far too low – has been poor:
By all measures, negative gearing and the CGT discount have been epic failures in achieving the HIA’s goal of boosting new construction, despite their significant cost to the Budget.
So why then has the HIA run such furious campaigns against reforms to property tax concessions (e.g. see here, here, here, here, here, here, here and here), which continues today?
Here we have Labor proposing to restrict negative gearing to new homes, thus channeling investment into the exact thing that the HIA is lobbying for – new supply – and boosting jobs for its construction members. Sure, much more could obviously be done on the supply-side. But Labor is the only party offering anything.
I can only speculate yet again that the HIA cares more about protecting the value of its developer member land banks, rather than actually boosting dwelling construction. Otherwise, why would it go to such great lengths and expense to oppose Labor’s ‘negative gearing for new homes’ policy?
