Rents to explode as federal budget targets property: Council

‘Explosive’ federal budget property tax changes will drive up rents and push first home buyers into their 40s – with renters to pay the price, the Property Council warns.

Property Council of Australia chief executive Mike Zorbas has come out firing against tax hikes bandied about for May federal budget, warning it is “full of risk for the supply of housing in Australia”.

MORE: One simple trick saving Aussie homeowners $74k

Zero reno, $700k profit in a year: Homeowner’s massive windfall

Mike Zorbas is chief executive of the Property Council of Australia. Picture: Aaron Francis / The Australian

---

“The most likely approach, as flagged by Ministers to date, is property tax hikes alone. 33 per cent Capital Gains Tax (CGT) discount vs equities at 50 per cent, with a 2-home negative gearing cap.”

But he said “hiking CGT on investment in new homes relative to shares will hammer supply”.

“That means intergenerational equity is at risk, especially for people who can only currently afford to rent not buy – almost 30 per cent of the population.”

Mr Zorbas warned any “retrospective change would be explosive”.

“Even if you put the CGT discount on existing property to 33 per cent, while leaving new homes untouched, and add grandfathering, upping tax rates on existing rental homes still means rents will rise and modelling shows housing supply will go down,” he said in a wide-ranging insight shared with members.

“Combining those outcomes doesn’t crowd many more people into becoming homeowners either because prices barely change and rates are not going down.”

The comments come as Mr Zorbas said “post budget, the Federal government can pass anything it likes with support from the Greens in the Senate”.

“Together they are 39 of 76 votes. Only an outbreak of good judgement in the Albanese Cabinet can help rental affordability now.”

MORE: Shock as rents fall in almost 1 in 10 suburbs

‘Political suicide’: Investor’s brutal call on tax reform

MR Zorbas said hiking CGT on investment in new homes relative to shares will hammer supply.

---

“After May under any change scenario almost 3 in ten people will still need to rent next year and for the next decade,” he said.

“That includes hopeful first home buyers, currently renting, whose median age is 34 across the nation. Those median ages will hit 40 in Sydney and Melbourne in our lifetimes without radical supply boosts.”

Mr Zorbas said rental investors relied on capital gains given they make sub 3 per cent return annually on properties – citing the impact of stamp duties, annual rates, land taxes, insurance and possibly body corporate fees.

“They rely on a rising house market. This desirable wealth effect is precious to more than six in 10 Australians as homeowners and housing investors more than most.”

He said if the investor cohort shifted its marginal investment dollar to shares/equities, builders would have less work, there’d be less positions for apprentices, less skilled and older workers employed “as development feasibilities look even sicker than they do now”.

MORE: ‘Breach’: Aussie told to rip up brand new floor

85 yo builder’s medieval castle faces 100-home subdivision

Developing Queensland – Builder meeting with woman and daughter at new home under construction.

---

Mr Zorbas said Victoria was a classic example of “daft” tax reform, saying the state with “the largest flat land advantage in the nation has a 3 level of government tax take at almost 40 per cent in some areas”.

“They have repeatedly repelled patient institutional investment in property through taxes on foreign investors, they unthinkingly tinker with property settings annually.”

Several factors were “going in the wrong direction” for availability and affordability of homes in Australia, he said, including population growth, fewer people per household, rising personal cost of credit, higher construction costs, growing federal state and local taxes and housing supply.

Mr Zorbas also slammed “state and local politician-controlled land use limitations and the project assessment land mines routinely strewn across this land rich, low population country”.

He said “so much more needs to be done and the failures to date are 100 per cent political, not investor driven.”