There is no doubt that the taxation of housing will continue to be a top issue for debate as we head into an election this year.
There has been considerable public debate about negative gearing in recent times. The boom in residential property market in Sydney and Melbourne put the spotlight on negative gearing and the so called 50 per cent discount on capital gains for residential property investment with some commentators blaming the consequences of the property boom, including housing affordability, in those two cities on the tax treatment.
It seems everyone has a “solution” with many commentators advocating changes of one sort or another to the current taxation arrangements.
There is no doubt that the taxation of housing will continue to be a top issue for debate as we head into an election this year. We have seen the Opposition propose changes to the current arrangements. The Government has rejected the Opposition’s policy and pointed out a number of adverse consequences of the policy proposal including lower housing prices and higher rents. The REIA’s view is that the Opposition’s policy if implemented would only add a distortion that reduces investment in housing, erode housing affordability and put upward pressure on rents.
It is interesting to observe the impact on rents over the last few years particularly in both Sydney and Melbourne, where the greatest investment activity has occurred. From the end of 2011, when investment in housing started to pick up, the rate of increase in rents has plummeted. For Australia, rents increased by 1.2% for the year ending December 2015 which is the lowest annual increase since March 1995. In Sydney the increase was 2.3 per cent and in Melbourne 1.7 per cent. At the same time there has been a steady increase in population in both cities.
Any repeal of the current arrangements would shrink savings and investment and see increases in the need for greater government investment in social housing.
The indications from the Government are that it will not change the existing arrangements.
It is against this background that this edition of REIA News features two articles on negative gearing. The matter of taxation of housing and the related issue of housing affordability have been priorities for the REIA’s advocacy work and will continue to be so in the lead up to the 2016 election which, with the announcement to recall Parliament on 18 April and to bring forward the Budget to 3 May, may be as soon as 2 July.