Federal Budget inadvertently creates boom conditions for property investors

A leading national commentator says the government has unintentionally created boom conditions for property investors.

By failing to make any significant structural changes that will address the lack of housing supply, Steve Douglas, Chairman of SMATS Group and Managing Director of Australasian Taxation Services and aussieproperty.com, said the next few years would deliver those getting into the property market now with years of strong gains.

By opting to continue with an extension of existing housing funding arrangements, only tinkering with rental support, and giving away one-off band-aid power bill credits, the government had missed an opportunity to really address the shortage of housing that is driving property prices higher.

“Governments are still greedily pulling in massive stamp duty taxes from the Australian public but are doing nothing to alleviate the pressure on the building industry, therefore ensuring the ambitious (1.2 million homes in five years) building target remains fanciful,” Mr Douglas said.

The head of the company that looks after more Australian landlords than any other accounting firm in the world said the inevitable result would be continued property price rises and huge opportunities for property investors.

“By dragging their heels, the Government has unknowingly created opportunity for property investors.

“If you’ve been procrastinating, now is the time to get into the property market or build on that existing real estate portfolio.

“There is nothing in the federal budget (released 14 May) that will put even a minor dent in the big issue impacting property prices – the lack of new supply.”

Investors discouraged from providing rental stock

Australia’s rental market remains extremely tight, despite a slight uptick in the vacancy rate.

PropTrack data released Thursday (16 May) shows that the national vacancy rate edged up slightly this month to 1.21 per cent, still way short of the 2 to 3 per cent band regarded as a balanced rental market.

Adelaide recorded the lowest vacancy rate of any market in April, with just 0.96 per cent of rental properties sitting vacant. Perth crept above the 1 per cent mark for the first time in almost two years, improving on Brisbane’s 1.02 per cent. Melbourne’s vacancy rate slipped back to 1.23 per cent, while Sydney improved slightly to 1.3 per cent.

With rents still rising despite the slowly improving vacancy rate, the budget’s 10 per cent increase in the maximum Commonwealth Rent Assistance payment, a supplemental payment for renters receiving government benefits, is unlikely to shift the dial in addressing the rental crisis.

Successive governments have failed to deliver any big ideas that could offer renters hope.

Mr Douglas pointed to the abundance of rental stock sitting in front of our collective noses that was being underutilised.

“For too long they have demonised and penalised property investors and landlords and that is a massive factor in why there is a shortage of rental properties, in combination with natural population growth, rising affluence and migration.

“Government should be looking to mobilise individuals in the fight against the housing affordability and rental crises.

He singled out unused rooms in millions of homes around the country as one source of a potential solution.

Currently, renting out a room invokes tax obligations that it takes the Australian Taxation Office 19 pages to explain.

“If the process of letting out a room was taxed less, if at all, and made simpler, the housing situation could be massively improved almost overnight.”

He proposed a tax regime whereby owners of properties registered their spare room as being rented out, paid no tax for three years and then had the option to continue or not when that lapsed.

“This would give the market the time to catch up on the building and delivery of homes and social housing in the pipeline.

“It would cost the government next to nothing and as a short-term measure would release hundreds of thousands of rooms that are sitting empty, while at the same time help those households address their cost of living issues with some extra revenue.”

Landlords not the enemy

Mr Douglas said that landlords, whether based in Australia or overseas, had been demonised for too long.

“Overseas owners (and expats) that have had the capital gains tax (CGT) discount removed, and expats with their principal residence CGT exemption taken off them if they sell while living abroad, all go towards making it less likely they will sell into the market to relieve demand pressure.

“Then the entry costs of stamp duty (normal and extra foreign buyer duty) plus GST (foreigners have to buy new, expats often do too) combine with higher CGT costs to make it less viable or attractive to invest.

“The fact is that many landlords face a net holding cost (negative gearing) when owning a property with a mortgage, so they are in fact subsidising the tenant in the hope the property value will rise.

“While prices have risen in many markets, there is risk.

“For most apartment buyers in Melbourne they have only seen property values decline or stagnate for a decade, while for many property owners in Queensland and Western Australia it has been many years without capital growth and only in the last year or two have prices start to lift.”

He added tenancy laws across the country have made it increasingly difficult for landlords to have tenants respect their property, or to recover justifiable costs from bonds.

“If this or any government is serious about address the housing crisis, it needs to do more than hand out $300 energy credits and renew existing policies; it needs to think bigger and make significant structural changes that will encourage homeowners and investors to increase supply quickly.”