REA: Housing reforms to nudge, not disrupt market

Speaking on the Savings Tip Jar podcast, REA Group senior economist Angus Moore said the overall impact of the capital gains tax (CGT) and negative gearing reforms on housing outcomes will be modest. 

“Obviously they’re fairly meaningful changes, certainly kind of the most interesting changes we’ve had to housing taxes in really a couple of decades,” Mr Moore said. 

But crucially, he said, these changes will not bring "a huge effect" in lowering housing prices. 

Listen to REA Group senior economist Angus Moore on the Savings Tip Jar podcast.

Treasury modelling suggests the tax setting reforms would slow property price growth by 2% over three years. 

On an average house, that’s nearly $19,000 spread out over a three-year period. 

Backing this forecast up, Commonwealth Bank estimates house prices would be 3% lower "than they otherwise would have been". 

"There’s a range of estimates in the literature… all in that sort of 1% to 5% range. So you know, meaningful [impact], certainly there, but not a massive effect," Mr Moore said. 

And while the shifts are expected to drive rents higher, he expects only a marginal increase. 

“We’d expect rents to be a hit higher, but again, not a huge effect,” he said.

Owner occupiers to outnumber investors

Mr Moore said the policy changes would lead to "more owner occupiers, more first home buyers and fewer investors" over time.

However, he stressed the shift would be incremental rather than dramatic.

Treasury estimates point to an additional 75,000 first home buyers over a decade, equivalent to 7,500 per year. 

“It’s a meaningful increase, but it’s not huge in the scope of the number of homes in Australia,” Mr Moore said. 

With investors partly replaced by owner occupiers, overall demand is expected to remain relatively stable.

“Those investors are replaced by first-time buyers… it’s not one for one, which is why we expect prices to be a bit lower… but it means there’s not that big pull away that we might otherwise see,” Mr Moore said. 

Property investment still viable despite tax overhaul

While investor demand is expected to soften slightly, Mr Moore believes property remains a viable investment option for some under the new settings. 

“I think it changes the incentives for some people, but I don’t think it does for everyone,” he said. 

Investment decisions, Mr Moore said, would still largely depend on individual goals and circumstances.

“We would expect that at the margin, we’ll see a bit less property investment as a result of these changes… but it probably isn’t a huge change, particularly as that carve out for newly built homes will see some of that demand converted into demand for off-the-plan and newly built homes,” he added. 

Mr Moore noted the ways the reforms were designed cushions the impact on investors, and the changes will take time to filter through the market. 

Existing properties are grandfathered under negative gearing rules, while newly built homes remain eligible. 

He also said the shift to inflation indexing for CGT is not as radical as it might appear. 

“In fact, some people would pay less tax under inflation indexing than they will under the existing 50% discount,” Mr Moore said, pointing to recent high-inflation periods where gains have been modest. 

Build more homes to improve affordability

Over the long term, Mr Moore expects only “fairly modest changes to home ownership, to home prices, to rents”. 

But the jury is out on whether the tax changes will bolster or hamper housing supply which remains the central issue in the nation’s affordability crisis. 

“When we think about housing affordability in Australia, it really does come back to building enough homes for the number of people looking to buy and looking to rent,” he said. 

While the Federal Budget included some measures tied to infrastructure and incentives, Mr Moore said more could be done. 

“I think it’s fair to say there’s more that we could do here.”