Rent-vesting, a strategy used by young Australians to save for a first home by renting in a preferred area while buying a cheaper investment property elsewhere, could be killed off by Labor's tax changes on investment properties, experts warn.
The strategy has boomed in popularity as young Australians struggle to break into an unaffordable housing market. However, higher capital gains tax and tighter restrictions on negative gearing announced in Tuesday's budget will make the method less attractive, according to Domain's chief economist Dr Nicola Powell.
“It’s going to hurt … [and] their journey to actually buying a home and having it as a roof over their head might be delayed,” Powell said. Rentvestors will still be able to negatively gear new builds or continue if they were negatively gearing a property before Tuesday's changes.
The typical Australian home now costs eight times more than the typical income, and it would take 11 years to save a 20% deposit. The tax reforms, aimed at cutting investors' competition for housing, are expected to help an extra 75,000 renters buy their first home in the coming decade and leave house prices 2% lower than they otherwise would have been.
Ry Atkinson, a Sydney renter who bought a house 1,200km away in Queensland's Hervey Bay, said he supports the reform despite tighter taxes on capital profits. “We know how difficult it is and something does need to change,” he said.
Brendan Dixon, managing director of Pure Finance, said banks would cut the amount they lend to new buyers, making rent-vesting more difficult. Shadow treasurer Tim Wilson argued the reforms harm young Australians by making the strategy more costly.
