Rents to explode as state budget targets property: Council

The Government’s ‘explosive’ property tax changes will drive up rents and pressure first-time home buyers into their 40s – and tenants to pay the price, the Buildings Council warns.

Property Council of Australia chief executive Mike Zorbas has come out against the proposed tax hike in May’s federal budget, warning it is “full of risks to Australia’s housing supply”.

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

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“The most likely way, as flagged by the Minister so far, is an increase in property tax only. 33 percent of the Capital Gains Tax (CGT) discount compared to the budget of 50 percent, with a negative rate of two houses.”

But he said “moving CGT on investment in new homes in relation to shares will provide a hammer”.

“That means intergenerational equity is at risk, especially for people who can only rent and not buy – about 30 percent of the population.”

Mr Zorbas warned any “backward change will explode”.

“Even if you put the CGT discount on the existing property at 33 percent, while leaving new homes untouched, and adding a grandfather, increasing tax rates on existing rental homes still means that rents will increase and modeling shows that the supply of housing will decrease,” he said in a broad view shared with members.

“Putting those results together doesn’t push more people into homeownership because prices don’t change and prices don’t go down.”

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

“A total of 39 votes out of 76. Only an outbreak of good judgment in the Albanian Cabinet can help rent money now.”

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MR Zorbas said increasing CGT on investment in new housing linked to shares would provide a hammer.

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“After May under any change scenario almost three out of ten people will still need to rent next year and the next ten years,” he said.

“That includes prospective first home buyers, current renters, whose median age is 34 across the country. That median age will reach 40 in Sydney and Melbourne in our lifetime without major property increases.”

Mr Zorbas said rental investors were hoping for capital gains if they made a three per cent annual return on the properties – citing the impact of stamp duty, annual tax, land tax, insurance and fees that the company might incur.

“They rely on a booming housing market. This desirable wealth outcome is valued by more than six in ten Australians as home owners and property investors more than most.”

He said that if the investment team turns their marginal investment dollars into stocks/shares, builders will have less work, there will be less positions for apprentices, less skilled and older people employed “as the prospects for development look sicker than they are now”.

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Mr Zorbas said Victoria was the best example of a “simple” tax reform, saying the country “has the largest flat land profit in the country with a 3-level federal tax rate of around 40 per cent in other areas”.

“They have repeatedly spent the investment of patients in property with taxes on foreign investors, without thinking about the settings of the buildings every year.”

Several factors were “going wrong” with housing availability and affordability in Australia, he said, including population growth, fewer people per household, rising personal debt costs, high building costs, growing state and local taxes and housing supply.

Mr Zorbas also criticized “land use restrictions imposed by the government and local politicians and landmine inspections that are often spread across a rich, sparsely populated country”.

He said “there is still a lot to be done and the failure so far is 100 percent political, not investors.”