The Australian government received confidential advice from Treasury warning that planned changes to negative gearing and capital gains tax concessions could lead to increased rental prices and reduced house prices. The modeling, revealed in a Cabinet document obtained under freedom of information, flagged these potential consequences prior to their inclusion in the May budget.
According to the Treasury advice, the reforms, which included axing negative gearing for new builds and changing the capital gains tax discount, were estimated to place "modest upward pressure on rents." The department projected a roughly 0.25 percent increase in rents shortly after the new policy took effect. Officials attributed the projected rent hikes to increased costs for investors, though they noted previous research suggested landlords could pass on only a limited portion of these costs to tenants.
The modeling also indicated a reduction in housing supply. However, Treasury officials suggested that these effects might be mitigated by other government initiatives aimed at boosting construction, such as land use and regulatory reforms. The department emphasized that any fall in housing supply would likely occur slowly over approximately a decade.
Treasury cautioned that the modeling involved "significant uncertainty," citing a range of outcomes from Australian studies on similar reforms. The department's estimates for impacts on supply and rents were predicted to be smaller compared to some comparable studies.
Opposition housing spokesman Andrew Bragg criticized the government, stating that the changes have exacerbated the housing crisis. He argued that higher rents, lower housing supply, and reduced numbers of first-home buyers are evident, citing a significant drop in owner-occupier loan applications.
Recent data shows a softening of house prices across major capital cities in the 90 days since the budget. Sydney experienced the sharpest decline, with dwelling values dropping 4.72 percent, followed by Melbourne at 3.86 percent. Nationally, advertised rents rose by 3.1 percent in the June quarter to a record $670 per week.
During Question Time, Liberal MP Tim Wilson questioned Housing Minister Clare O'Neil about Treasury's forecast that the tax changes would cut property prices by only two percent, in light of current rapid price drops in Sydney. O'Neil acknowledged the price falls but reaffirmed the Treasury figures, suggesting the reforms would increase the owner-occupier share of the market. She stated that the reduction in investor demand was expected to cause a small and temporary slowing in house price growth, leading to approximately two percent less growth over a couple of years compared to a scenario with no policy change. O'Neil also contextualized current price movements against a 400 percent growth in house prices over the last 25 years, emphasizing the government's goal to make home ownership accessible.