Summary

Everyone agrees housing affordability is a serious problem. The question is how to fix it. 

Labor's budget focuses on taxing investment, but housing becomes affordable when we build more homes, improve productivity and attract private capital into construction. 

Australia shouldn't pit young people against older Australians or renters against investors. We need policies that increase supply, encourage investment and create opportunities for the next generation without punishing those who have worked, saved and invested under the existing rules.

1. Housing affordability is a supply problem, not a tax problem

The reason housing is expensive is that Australia doesn't build enough homes. Taxing investors doesn't magically create more housing. 

It actually risks reducing the capital needed to build and supply rental accommodation.

The Budget itself states its goal is a "fairer housing market”.

But:

• We don’t have so much a housing crisis as a rental crisis.
• If investors leave the market faster than new homes are built, rental shortages worsen.
• Lower investor participation will reduce the stock of rental accommodation.

2. The budget risks reducing private investment in housing

Labor's major reform is to restrict negative gearing largely to new builds and replace the current 50% CGT discount with a new indexed system from 2027.

Private investors fund most housing. When you reduce the return on investment, you get less investment. That is a fact.

This was the logic behind Hawke and Keating's broader economic reforms:

• attract capital;
• encourage investment;
• grow supply;
• increase productivity.

The current reforms move in the opposite direction by making property investment less attractive.

3. Today's investor is often tomorrow's retiree

One of the strongest real-world issues is around whom benefits from property investments.

Labor talks as though every investor is a billionaire. In reality many investors are teachers, nurses, tradespeople and small business owners trying to build retirement savings outside super; trying to build sufficient funds to keep them without relying on the government in their later years, and trying to build sufficient equity to help their own children get into the property market.

Labor’s reforms hit:

• middle-income households;
• self-funded retirees;
• small business owners using trusts;
• families building long-term financial security.

4. It encourages generational resentment instead of solving generational problems

Labor has incentivised generational warfare, encouraging young people to attack property investors specifically. Yet these property investors are the ones supplying the rentals young people start out in.

Australia succeeds when all Australians are on the same team. Policies that pit renters against landlords or generations against each other divide the country without actually increasing housing supply.

5. Hawke and Keating focused on productivity, not redistribution

Hawke and Keating expanded markets, lowered barriers, encouraged investment and improved productivity. Their reforms were about growing the economic pie. 

This budget only redistributes financial reward away from those who have earned it. It does not create a better financial position for youth at all.  

Hawke/Keating:

• floated the dollar;
• deregulated the financial market;
• reduced tariffs;
• engaged in enterprise bargaining.

All reforms designed to increase national productivity.

The current budget contains little in the way of productivity reform. Its emphasis is tax changes and redistribution.  

6. The "fairness" test cuts both ways

Is it fair to change the rules after people have spent decades making financial decisions based on existing rules?

Many Australians:

• borrowed heavily;
• invested conservatively;
• accepted risk;
• planned retirement around this.

All under a particular tax framework.

Repeated rule changes undermine confidence in long-term investment. 

7. Australians punished, foreign investors rewarded

Labor is offering foreign companies tax breaks to invest in “build-to-rent” (BTR) housing. Encouraging foreign ownership of Australian property while punishing Australian investors.

Key incentives include cutting Foreign Investment Review Board (FIRB) application fees for BTR projects and lowering withholding tax rates for eligible BTR Managed Investment Trusts (MITs) from 30% to 15%.

Yes, a reduction in tax while increasing the tax on Australians.

The goal should be Australian ownership of assets, especially where vulnerable Australians are the target renters. 

We should allow Australians to build financial security for their future and for their children, not punish it. 

8. Australia already has a tax burden on investment

The solution to a housing shortage is more houses. The problem of continually increasing taxes on capital will achieve a shortage of available rentals. 

• higher taxes on investment reduce capital formation;
• reduced investment eventually reduces supply;
• lower supply ultimately pushes rents and prices higher.

Even if prices soften temporarily, expect investor activity to decline under these reforms and negative impacts on future housing supply.

9. What’s driving the increase in rental demand?

While holiday letting has had some negative impacts on permanent rental property availability in holiday towns such as Noosa and Byron Bay, the real issue is supply vs demand.

COVID created a decrease in household size from 2.6 people to 2.48, driven by a rise in single-person households - whether from fear of illness or needing the space to work from home. 

That doesn’t sound dramatic, but it translates to an actual 4.84% increase in the number households.  Which, on the basis of existing households, is approximately 124,000 NEW households.

We certainly didn’t build that many new homes during COVID.  

And in Noosa during COVID, we lost 60% of our rental portfolio. With the severe lockdowns in southern states, interstate landlords (a good 30% of our portfolio) said do not renew the lease, we are moving in. Because the only way out of lockdown was relocation to Queensland. 

We lost another 30% of rentals under management because landlords said sell. The only buyers were owner occupiers for the same reason. 

The last third put the rent up a few hundred dollars per week because they could. Supply had fallen dramatically, and local families were pushed out as the demand from interstate renters increased dramatically, for the same reason as buyers. It was the only way to get out of lockdown.

At least during COVID the then Federal (Liberal) government froze immigration. But since COVID, the current Federal government (Labor) has brought in hundreds of thousands of immigrants annually, increasing the pressure on the rental market.  

Net overseas migration has increased from 178,582 persons in 2015-16 FY, to 536,000 in 2022-2023 FY, mostly driven by family reunion migration. And it is averaging around half-a-million people currently, per year.

Due to FIRB and Visa rules, these people are generally not purchasing, but competing for rental properties. 

10. Who is going to build the supply required?

COVID also created delivery challenges and cost increases of 31-47% per house. Nearly 50% more to build a house today than in 2019.  

And that has seen the demise of more than 12,000 Australian building companies (due to fixed-price contracts, inability to finish, lack of skilled staff). 

Data from the Australian Securities and Investments Commission (ASIC) shows that construction is the hardest-hit industry in the country. It now accounts for 28% of all corporate insolvencies nationwide.  

Under the National Housing Accord, the Federal government target of new houses is 240,000 annually (1.2m new homes over a five year period). 

Currently, 176,000 dwellings are finalised annually. In Queensland that is just around 30,000 new homes.

• We are falling short on supply by 64,000 houses each year;
• We are bringing in 500,000 too many people each year;
• It is a supply and demand problem, and not something new taxes will fix. 

In fact, it is already evident that this budget with its new taxation rules around Australian investment is driving investors out of the market of established property. 

It will send them to new property, putting them in direct competition to first home buyers and will drive prices up further.