Property investors targeted as political debate rages around housing affordability

Housing has stepped onto centre stage in the federal government policy arena, with funding of the Help to Buy scheme emerging as the political football around which different sides of the debate are trying to kick goals.

As they did when they extracted a series of housing policy concessions when the Labor Government’s housing centrepiece, the Housing Australia Future Fund (HAFF), passed with a majority vote in the Senate in September, The Greens are now seeking changes to negative gearing and capital gains tax discounts.

The Greens hold the balance of power in the Senate and for Labor to get their scheme up and running they will require the support of The Greens and two additional crossbenchers.

The Help to Buy scheme aims to assist up to 40,000 prospective buyers a year in an initiative whereby the government takes equity in their homes amounting to 30 per cent for an existing build or 40 per cent in a new build, allowing those struggling with housing affordability to use smaller deposits and loans for their purchase.

The Greens’ latest powerplay on the housing policy front comes as affordability issues gather momentum, fuelled further by a study released Monday (12 February) that found stamp duty costs home buyers up to six times more than a generation ago, acting as a significant upfront cost and a barrier to entering the housing market.

The findings of the study made by E61 Institute in collaboration with PropTrack found stamp duty costs around six months take-home income in Sydney and Melbourne, which has doubled since the 2000s and grown as much as six-fold since the last generation.

In Sydney, stamp duty on a median-priced home is equivalent to six months of full-time post-tax income. That is 5.4 times higher than it was in the early-to-mid 1980s.

In Melbourne, buyers need the equivalent of six months of full-time post-tax income – a whopping six-fold increase from four decades ago – the largest increase of any state.

The research concluded stamp duty was an “inefficient tax” after it found more than a third of Australians surveyed wanted an end to stamp duty.

The report also found that the most popular housing policy for state governments is to abolish stamp duty altogether.

Dr Nick Garvin, Research Manager at the e61 Institute, said overhauling the current stamp duty system has the potential to alleviate costs pressures on property buyers and the economy more broadly.

“Governments and policymakers must consider the unpopularity of stamp duty, and the indirect impacts stamp duty has on various other parts of the economy and people’s lives.”

Labor insists negative gearing changes are off the table

Labor had hoped to have its Help to Buy scheme operational later this year but The Greens are trying to force them to pare back negative gearing and capital gains tax discounts in exchange for their support in passing the bill.

They claim the scheme would push up house prices while failing to help renters and first-home buyers.

“We have a property investor prime minister who is refusing to phase out billions of dollars in tax concessions for property investors that are denying millions of renters the chance of ever buying a home,” Greens housing spokesperson Max Chandler-Mather told media on Monday.

“The system is stacked against renters and first home buyers,” Mr Chandler-Mather said.

“Pressure works. Labor changed their position on stage-three tax cuts and now they need to change their position on negative gearing and capital gains tax.”

Negative gearing allows investors to claim deductions on losses, while the capital gains tax discount halves the amount of excise paid by people who sell assets that have been owned for 12 months or more.

Former Liberal NSW premier Dominic Perrottet has also called on governments to consider issues such as negative gearing.

“More than 90 per cent of all property investor purchases are on existing dwellings,” Chandler-Mather said.

“That means they’re not actually adding to supply. What they're doing is hoarding homes that could have been used by a first home buyer.”

Independent senator David Pocock is one of the players the Government will be leaning on for support but he too has indicated he’d like to see more stringent rules around negative gearing.

He has suggested capping the number of investment properties that can be negatively geared.

“It shouldn’t be easier to buy your second or third house than your first, but right now in Australia it is,” he said.

“We are staring down the barrel of the worst housing crisis in generations and it’s going to require some fundamental changes and more than a bit of political courage to fix.”

Despite these calls, Federal Treasurer Jim Chalmers has said the government will not be bowing to The Greens or others seeking political gains from the Help to Buy scheme’s passage through the Senate.

“That’s not something that we’re proposing, not something we are considering, not something we are working up,” he told media on Sunday.

More homes, not more disincentives to invest

Responding to reports around proposals to change negative gearing, Master Builders Australia said this is a timely reminder as to why proposed changes to negative gearing have been dropped in the past.

“Prior to the 2019 election Master Builders had modelled ALP policies to change negative gearing and capital gains tax arrangements,” Master Builders Australia CEO Denita Wawn said.

“The policies would have seen a fall in the number of homes being built, thousands of job losses and billions of dollars wiped off the value of residential building activity.

“Fast forward to 2024 and we’re now in an even worse economic and housing environment, with renters and mortgage holders bearing the brunt of rapid interest rate rises and high inflation.

“The Henry Tax Review, Productivity Commission and Reserve Bank of Australia have all said curtailing investor incentives like negative gearing and capital gains tax discounts reduces housing supply rather than improve it.

“With the current downturn in new building approvals and investments in new housing, why we would take a sledgehammer to investors, including Mums and Dads beggars’ belief.

“The priority of the Federal Government should be on ensuring the objectives of the Housing Accord are fulfilled and our target of building 1.2 million homes is achieved.”

According to the Federal Treasury’s Tax Expenditures and Insights Statement, published last month, 2.4 million people claimed $48.1 billion of rental deductions in 2020–21.

This resulted in a total tax reduction of $17.1 billion. Of the total number of people with rental deductions, almost half (1.1 million) had a rental loss, known as negative gearing, which added up to total rental losses of $7.8 billion. These rental losses provided a tax benefit of around $2.7 billion in 2020–21.

Wealthier Australians benefited the most, with 80 per cent claimed by people with above median income, and 37 per cent claimed by people in the top income bracket.