Tax reform aimed at property investors will drive up rents, brokers claim

Critics of the Howard-era policy argue that the two policies, when combined, created a rush in real estate investor activity, pushed prices beyond the reach of the average first-home buyer and continued to favor the wealthy.

Chalmers has had his sights set on tackling intergenerational inequality since his first speech to parliament in 2013, and any change to this policy would be aimed at exactly that.

But the Finance Brokers Association of Australia (FBAA) claims pushing investors out of the market now will have the opposite effect than desired, especially on rental prices.

“In many parts of Australia there are 10 to 20 people or more looking at one rental property, so there is now a lack of availability, so why should we reduce that supply even further,” said interim CEO Peter White.

“The theory that this will lower the cost of housing so much that someone who currently cannot afford to get a mortgage and enter the real estate market will suddenly be able to do so is overly simplistic and ignores the many other factors in loan approval.”

Reform advocates say removing the benefits for investors will dampen demand and give first home buyers a chance.

Matt Grudnoff, senior economist at The Australia Institute, believes tax breaks for property investors have distorted the market.

“The CGT discount is the biggest incentive for investors,” Grudnoff said.

“By abolishing it, the federal government will favor first home buyers and help more Australians into homeownership.”

Currently, the capital gains discount policy means that if you buy an asset such as a house, hold it for at least twelve months and then sell it, you only pay tax on half of the gain (capital gain).

Before 1999, real capital gains were indexed to inflation.

Recent research from the Australia Institute found that 50 percent of respondents agreed that the government should “reduce tax benefits for property investors, such as capital gains tax relief and negative gearing”.

The Greens want negative gearing to be phased out and capital gains tax rebates and exemptions on real estate to be abolished.

The coalition is firmly against any change to the CGT.

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