With negative gearing and capital gains tax back on the national agenda, experts say such reforms would be unlikely to lead to a major fall in property prices. But some investors say they could be forced to sell if there are changes to property tax breaks and that could force rents higher.
Negative gearing, capital gains reforms unlikely to lead to major fall in property prices, but rents could rise, experts sayNegative gearing, capital gains reforms unlikely to lead to major fall in property prices, but rents could rise, experts sayExperts say property investment tax breaks are an equity issue but supply is the bigger problem for the housing market.
It also proposed halving the 50 per cent capital gains tax discount for those who held an asset for more than 12 months, again exempting existing investments. Since by its nature, negative gearing requires that investors make a loss, on its own it is not the main reason people invest in property. "But if you're looking at the tax breaks that are attributed to that, there's a lot of people that would be heavily affected if they were taken away or even diminished."
Grattan Institute's Brendan Coates said while their updated modelling suggested the impact on house prices would be minimal, possible changes would still help more renters to become home owners. A University of Melbourne study by academics Yunho Cho, Shuyun May Li and Lawrence Uren found eliminating negative gearing would reduce total housing supply by 1.8 per cent and increase rents by 2.5 per cent.
Since 1999, the capital gains tax discount was made a little more generous, with investors able to halve their capital gains."The capital gains tax discount has undertaxed capital gains in the post-2000 period as inflation has been low and house price growth high," Dr Uren said. "Estimates put it at 30 per cent to 50 per cent effects on house prices. So in contrast to tax concessions, zoning is huge."He said while builders and developers want to provide more housing in inner cities where people want to live, they faced restrictive planning rules from local and state governments.
"Investors make up a relatively high portion of finance at the moment, accounting for about 38 per cent of housing finance," Ms Owen noted. "But I don't think it's the major player in why house prices in Australia and, frankly, many other countries are so high and have increased so much in recent years," he said.
He also argued that "from an equity perspective, it's certainly true that the gains of negative gearing and capital gains will go to investors, and most investors are usually middle to high-income households".
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