Experts are divided on the housing affordability impact of proposed tax reforms
A majority of economists surveyed believe proposed changes to negative gearing and the capital gains tax (CGT) discount will benefit first home buyers, though a significant minority disagree — and concerns are mounting over the broader economic consequences.
The findings come from the latest Finder survey, in which experts and economists shared views on key economic issues.
On the proposed tax reforms, just over half of those who responded (52%) said the changes would help first-home buyers, while 48% said they would not.
The panel was more united on the broader economic effects: 63% said the changes would be harmful to small business, and 68% said start-ups should be exempt from the proposed CGT changes.
"Reducing the tax advantages for investors will give first-home buyers a better shot at competing for a property," said Richard Whitten, home loans expert at Finder. "But the experts are clear that this alone won't fix affordability. Australia still has a fundamental housing shortage, and that's what ultimately drives prices."
Graham Cooke (pictured right), from Aussie Insights, suggested the reforms could produce a rare buyer's market, though cautioned that recent purchasers may be exposed to negative equity.
"The big winners here will be first-time buyers," Cooke said. "Anyone who has been saving a deposit and waiting for the right opportunity to buy their first home will now be operating in Australia's first buyer's market in many years.
"While this is excellent news for young people looking to get onto the property ladder, it is a significant concern for those who purchased recently with sub-10% deposits, as they are now at risk of falling into negative equity. Those buyers will be hoping the market bounces back quickly."
The survey forecasts property price softening over the next 12 months, with average predicted falls of 4.2% in Sydney and 3.7% in Melbourne, while Perth is expected to rise by 0.5%.
Shane Oliver (pictured right), chief economist at AMP Bank, offered a cautious assessment, noting that while reduced investor demand may assist some first-home buyers, the reforms do not address the underlying supply deficit.
"By depressing investor demand, it will help some FHBs get into the property market, but they won't make a huge difference to poor housing affordability because it won't address the fundamental housing shortage and could even make it worse over time (because there will be less investors as a result of the tax changes which will mean less supply. Even the Budget papers say supply will be lower by 35,000 homes over a decade," Oliver said.
"By depressing housing supply, it could make things harder for renters. It also removes opportunities for wealth generation for younger generations that older generations have been able to take advantage of. The CGT changes also risk reducing the availability of risk capital in Australia (because they bias investors to safer investments less dependent on capital growth) and this could work against the need to boost productivity."
Associate professor Evgenia Dechter, from UNSW, agreed the changes could offer modest assistance to first-home buyers by reducing investor tax concessions. "However, housing affordability is also a supply problem, so the effect for first-home buyers is likely to be modest unless planning, infrastructure, and construction costs are also addressed," she added.
Tim Reardon (pictured right), chief economist at the Housing Industry Association, warned that the tax increases could compound the existing housing shortage.
"Housing supply will be reduced by the increase in taxation," he said. "This worsens the housing problems and exacerbates the barriers to first-home buyers entering the market.
"Once a change is made, there needs to be consistency across asset classes or the adverse impact on housing will be worse. This means that FHBs do not benefit from the Budget, investor activity will remain strong and small businesses will bear a higher tax burden."
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