The housing crisis will get worse, experts warn about CGT, Negative Gearing

Australian building approvals rose dramatically in February, rising by 19,000 in a month for the first time since August, 2021.

But this increase still leaves the country short of the figures needed to reach the National Housing Accord’s 1.2 million new homes by 2029 target, economists believe the Albanian government may look to change the goals in next month’s state budget.

The bottom line is that Aussies are more likely to face rising house prices in the future, despite government efforts to make housing more affordable.

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It comes as the Housing Industry Association has warned changes to Negative Gearing and Capital Gains Tax benefits for property investors could lead to a reduction of almost 80,000 homes in housing construction.

Australian Bureau of Statistics data released today showed there were 19,022 new homes green-lit for construction across the country in February.

The nearly 30 per cent increase from January was led by an increase in houses and units, which more than doubled from January to 8922 permits – with Victoria accounting for more than 3000 of the total.

However, the state is coming off two very weak months and Oxford Economics’ Maree Kilroy said it was unlikely to continue at those levels.

Housing permits remain below the levels required to meet the country’s construction targets, 20 months into the National Housing Agreement.

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In the last 12 months, there were 196,491 new homes approved across the country, including more than 115,000 houses and more than 81,400 non-household properties.

With data released 20 months since the National Housing Deal launched a five-year target to build 1.2 million new homes across the country – the country is still short of the levels needed to meet the federal government’s first million target, which was abandoned as insufficient shortly after it was announced.

The latest figures are more than 15,500 more than the same period last year, and an increase of more than 30,000 from the 12 months to February 2024.

But although this is the third time Australia has exceeded 196,000 permits since the first announcement of the Agreement by the Albanian government in 2022, the numbers have not yet exceeded 200,000 – the number needed annually to reach the target of 1 million homes.

Ms Kilroy said that because of the statistics and the worsening economic situation, the country would not reach its 1.2 million home target – and the federal government could now look to revise or the timeline to reach it, or add more homes under construction by the end of five years.

Demand for new homes is predicted to decrease due to rising interest rates and fuel costs.

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“But I think we will still be found on the ground,” he said.

HIA senior economist Tom Devitt noted that the recent approvals preceded both the Middle East conflict, and the recent interest rate hike.

“The data does not reflect the effects of two recent rate hikes by the RBA, and the rise in fuel prices with recent events in the Middle East,” he said.

The HIA’s managing director, Jocelyn Martin, added that an analysis commissioned by an independent economic team found even a “small” loss of Negative Gearing would result in a reduction of 46,000 homes in the construction pipeline in the future.

The end of the Capital Gains Tax rebates will reduce the cost of approximately 33,000 households.

Combined, these two reductions will add more than $5bn to the country’s Gross Domestic Product, and impact up to 7300 construction jobs.

The managing director of the Housing Industry Association, Jocelyn Martin, has warned of up to $5bn in the Australian economy if CGT and Negative Gearing are abolished.

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With a vacancy rate of 1.1 per cent already in Australia, and the nation’s population still growing, future pipeline cuts will result in employers being among the most affected, Ms Martin said.

“Private investors provide about nine out of ten rental properties across Australia, the majority of whom are small investors, mums and dads,” she said.

“If governments want to help renters, the focus must be on increasing housing supply. Targeting rental housing investment with new taxes will make the rental problem worse, not better.”

The CEO of Master Builders, Denita Wawn, said that due to the recent details of building approvals, builders, especially small businesses, are in trouble.

“According to the Productivity Commission (PC), the estimated burden of housing control costs is up to $47.5 billion per year, which is up to $320,000 per new home,” said Ms. Wawn.

“Australia cannot afford any more barriers to its residential, residential or non-residential pipeline and needs decisive action to stop the sheer volume of regulations identified by the PC as one of the biggest causes of underperforming our industry.”

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