While some suggest that changes to property taxes could help ease the housing crisis, experts caution that it may lead to higher rents.
Australian National University economist Ben Phillip argues that negative gearing and the Capital Gains Tax (CGT) discount are not significant drivers of rising house prices.
“Negative gearing is a relatively small deduction, so it’s unlikely to drastically affect prices, especially if current investors are grandfathered,” Phillip explains.
Peter Tulip, Chief Economist at the Centre for Independent Studies, warns that increasing property taxes would reduce investment and lead to fewer homes being built.
“Taxing landlords results in higher rents because it reduces incentives to build,” Tulip says.
Treasury data shows that about 1.1 million property investors reported total rental losses of $7.8 billion in the 2021 financial year, with tax benefits amounting to around $2.7 billion.
Tulip also suggests that streamlining zoning and planning processes would be a more effective solution to the housing crisis, encouraging higher-density development in well-located areas near public transport.
Research from the University of Melbourne indicates that eliminating negative gearing could reduce the total housing supply by 1.8% and increase rents by 2.5%.
Tim Reardon, Chief Economist at the Housing Industry Association, agrees, stating that higher taxes would reduce housing investment, limit new construction, and worsen affordability.
