The Dot Update - October 2024
Welcome to this edition of the Dot Update -
Potential Negative Gearing and Capital Gains tax changes – In conversation, again.
Although some believe changes in property taxes could help alleviate the housing crisis, experts warn it could drive rents up even further. Australian National University economist Ben Phillip says negative gearing and the Capital Gains Tax discount are not major contributors to growing house prices.
“Negative gearing is a relatively small deduction, so it’s unlikely to have a dramatic impact on prices, particularly if the government grandfathered existing investors,” he says.
Chief economist of the Centre for Independent Studies Peter Tulip says increasing taxes will lead to less investment and fewer homes being built.
“Taxing landlords increases rents because incentives to build are reduced,” he says.
Treasury figures show about 1.1 million property investors recorded total rental losses of $7.8 billion in FY2021 with a tax benefit of about $2.7 billion.
Tulip says the best way to address the housing crisis is to reduce the amount of red tape and delays around zoning and planning. He says this could lead to higher-density development in better locations close to public transport.
University of Melbourne research says eliminating negative gearing could reduce total housing supply by 1.8% and increase rents by 2.5%. HIA Chief Economist Tim Reardon says increasing taxes will result in less investment in housing, less construction and worsening affordability.
Property Market Trends – September 2024
In September, Australia's property market experienced a continued upswing, although price growth slowed as more homes entered the market, offering buyers greater choice. Despite affordability constraints, demand remained strong, with national home prices rising by 0.04%, now 5.67% higher than a year ago.
Highlights from the PropTrack Home Price Index:
• Adelaide led the capital cities, with prices increasing by 0.53%, contributing to an impressive 15.05% annual growth. Low stock levels and strong demand continued to drive competition.
• Brisbane saw prices rise by 0.20%, reaching new peaks and remaining one of the top performers with prices up 13.31% compared to last year.
• Perth maintained its outperformance, recording a 0.24% increase in prices, with annual growth hitting 22.34%.
• Sydney prices were flat, though they remained at peak levels, 4.98% above September 2023.
These trends reflect a diverse and multi-speed market, with varied performance across capital cities and regional areas. As we move further into the spring selling season, we expect price growth to continue, albeit at a more moderate pace, influenced by high interest rates and other economic factors.
First Home buyers – The Guarantee scheme making its mark
A fifth of first home buyers who used the Federal Government’s low deposit loan guarantee to get into the market have already been able to transition out of the scheme. More than 19,000 loans secured under the scheme have “graduated out” of it since its introduction in 2020.
Housing Australia’s Trends & Insights Report for the past financial year also shows that 63% of those who use the scheme are ahead on their mortgages with only 0.1% of loans under the scheme in arrears. Chief program officer of home ownership, Jennifer Chew, says the scheme has helped support thousands of eligible home buyers to enter the market.
The analysis shows nationally a third of first home buyers (58,000 buyers) used the scheme in the past financial year.
Victorians are the biggest users of the scheme (28%) with the top national areas for home buyers the Melbourne suburbs of Hoppers Crossing, Craigieburn and Cardinia. Queensland buyers accounted for 24% of users and Western Australia 15%.
As always, we hope you enjoyed reading the blog and should you have any questions, please feel free to email Connecting@dotfinancial.com.au or you can call us on 1300 000 DOT (368).