Australia's Albanese government is set to unveil budget changes targeting negative gearing and capital gains tax for property investors, sparking warnings of rent increases and supply shortages. However, experience in Victoria suggests such fears may be overblown.
The reforms, which include grandfathering for existing investors and exempting new-build purchases, aim to shift housing from a financial tool to shelter. Since 2020, investors' share of new home loans has risen from below 30% to over 40%, squeezing out owner-occupiers.
Critics argue that curbing investor incentives will cause a mass sell-off and rental price hikes. Yet in Victoria, a 2023 land tax increase on investors led to a 3% drop in rental stock but no corresponding rent spike. Instead, first-home buyer loans surged as renters entered the market.
Michael Fotheringham of the Australian Housing and Urban Research Institute notes the current system makes it easier to buy a second home than a first. The tax changes are designed to correct this imbalance without drastic consequences.
While not a panacea, the reforms nudge Australia toward a fairer housing market. The exemption for new builds also aims to stimulate supply, countering claims of a construction slowdown.
