The CoreLogic analysis of the Australian residential market provides a sobering read for policy makers considering making major changes to the tax treatment of residential housing.
Over 2 million Australians own an investment property worth a total of $1.3 trillion. These investors drive supply of low income housing – with over 53% of all investment properties worth less than $500,000.
Rents across Australia have fallen by 0.2 per cent over the past 12 months – benefiting the millions of Australians who rent.
The Opposition has proposed radical to the treatment of investment properties that will raise an additional $32 billion. Much of this will be passed on to tenants and will limit new investment.
Investors are already paying stamp duty, council rates, land tax and capital gains tax. According to the ABS, Australians are already paying over $45 billion in property taxes. In NSW, for example, stamp duty alone adds $35,000 onto the price of the average property.
The CoreLogic data also confirms that most Australians who own an investment property own just one – with an average of 1.28 rental properties per investor. The report highlights that negative gearing is a vital tool for young people and middle income earners to help secure their financial future.
It is middle income earners, with taxable incomes of $60,000 to $80,000 who are most likely to claim a negative gearing loss. Two in three investment property owners in this income claim a loss against their property. While 50 – 64 year olds are more likely to own an investment property, it is younger people who are more likely to negatively gear.
The report highlighted the importance of property investors to new housing construction. Investors comprise about 40 per cent of mortgage demand for new housing. Investors are creating additional supply which is playing an important role in easing pressures on housing affordability.
The construction of a new dwelling typically involves 40 tradies and subbies – these jobs are at risk if investors walk away from new housing construction. This is a real threat given the decisions of the Victorian, NSW and Queensland governments to introduce major new taxes on investments made by foreign investors.
This report is a reminder that changing capital gains tax and negative gearing will impact the decisions of investors. It will mean less new housing supply, more pressure on rents, and distortions within the market with different assets treated differently.
Changing negative gearing is a risk during a time when our economy is in transition.