Australia’s biggest real estate group warns CGT rebate changes will impact rental supply

The Ray White Group has called on the federal government to maintain capital gains tax (CGT) relief amid concerns that any proposed cuts could lead to a drop in much-needed rental properties.

Dan White, managing director of the Ray White Group, and the group’s chief economist Nerida Conisbee urged the government in an open letter to its members to avoid making changes to the tax credit.

The federal government is understood to be weighing options to reduce the CGT discount ahead of May’s federal budget, although nothing has been confirmed.

Property owners who hold an investment property for more than 12 months are eligible for a 50% CGT discount, meaning that only half of the net capital gain is added to their taxable income when sold.

The CGT discount has become a hot topic in Australia’s housing affordability debate, with some saying the discount boosts employment supply, while others argue it is too generous to investors.

It comes as home prices continue to rise, with the latest median home price growing 9.1% to $897,000 in the year to February, according to PropTrack.

Mr White told realestate.com.au that housing affordability was a real problem, but measures aimed at investors could have unintended consequences for tenants.

“I think there is no question that buying a house is a problem, and there is no doubt that it is a problem for first-time buyers,” he said.

“But I think that just trying to create frustrations for housing investors will hurt the 2.9 million Australian families who rent. They’ve had a huge increase in rents over the last five years, and this will make it worse for them.”

“You may be easing the problem on one side, but you’re making it harder on one part of the community on the other, and I don’t think that’s right.”

In the letter, Mr White and Ms Conisbee wrote that the proposed changes to the CGT discount could reduce the number of properties available for rent, increase rents, impact new housing construction, and more.

“These possible changes are considered as efforts to reduce the demand of investors for residential properties to benefit home owners, especially those who buy first homes,” they said.

“While we acknowledge the growing challenge of housing affordability, our position, and the position of many industry associations, is that reducing or eliminating the CGT discount will result in higher costs for 2.9 million rental homes.

“These measures will put a lot of pressure on tenants who have had to accept a 49.6% rent increase over the last five years.”

The federal Senate’s inquiry into the CGT discount has recently heard from many supporters and opponents, including the Real Estate Institute of Australia (REIA).

REIA president Jacob Caine said changes to the CGT discount risked a housing shortage in Australia and an unaffordability crisis.

The president of the Real Estate Institute of Australia, Jacob Caine, says the country is already facing the worst affordability crisis in its history. Image: Provided

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“If you look at every model you can think of that has questioned the effects of changes in CGT, it shows that it has a negative impact on supply,” he said.

“At this time, when Australia is navigating the worst affordability crisis in its history, we cannot deal with the system in a way that will reduce the supply of existing homes and new homes entering the market.

“Ultimately, it puts more pressure on people trying to secure their first home and a greater amount of pressure on renters who may be more vulnerable to price changes in the country.”

The Greens and others who support cutting or abolishing the CGT discount argue that the allowance has been used to subsidize speculation on existing properties, drive up house prices and make home ownership more difficult for tenants.

Australian home prices rose 9.1% to $897,000 in the year to February. Image: Getty

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Almost one in three households rent in Australia, with private landlords representing around 83% of the rental market.

There is also speculation that the budget may include restrictions on negative spending, which is when the cost of owning an investment, such as a rental property, is higher than the income and losses can be used to reduce taxable income.

Ray White manages over 222,000 properties on behalf of landlords.