Election 2016: Housing

One key policy area this election is the ever-popular subject of housing. What policies are being offered by the major parties in 2016? Here’s a brief summary.

Labor

Labor’s policy on housing affordability comprises two parts: changes to negative gearing tax concessions, and changes to the capital gains tax. Both are targeted at skewing the housing market in favour of first-home buyers, away from property investors. The first is arguably the main component of the ALP’s housing policy. In owning an investment property, an investor receives rental income, but incurs costs in the form of interest payments used to mortgage the house, and other maintenance expenses. Generally, these costs are greater than the property’s rental income, and so investors make a loss of $10,000 per year, on average, on each of their investment properties. Currently, they are then allowed to take this loss and deduct it from their taxable income. This is therefore an incentive for investors to buy property. The ALP’s policy involves ending the ability for investors to claim such deductions on existing investment properties bought from 1st July 2017 onwards. Current property investors are unaffected, and concessions will still apply for investment in newly constructed properties to encourage supply of new housing. The second part involves reducing the capital gains tax discount from 50% to 25%. When house owners sell their property, it is likely that its value would have increased, and that they would have therefore profited from the sale. This is known as capital gains, and is classified as a form of income. However, this income is currently discounted by 50%, meaning that if someone makes $100,000 from capital gains, only $50,000 of it would be classed as taxable income. Labor plans to reduce this to 25%, in order to further discourage excessive demand in the housing market by investors. Coalition The Coalition has opposed both of Labor’s policies, on a view of protecting property values. They believe that both policies would instigate a fall in house prices and threaten the value of investors’ portfolios; however, Labor has disputed this, saying that the policies will only curb excessive growth in housing prices seen over recent years and do not preclude property as an investment option (particular newly constructed dwellings, which would retain negative gearing tax concessions). Both the Coalition and Labor have suggested that they will consult with the States to release land in metropolitan areas and make it available for new property development, in order to encourage more supply of housing. No details of how this would be done have yet been established. The Coalition take the view that the status quo does not need to change, saying that because ‘previous growth in housing prices has moderated’, an alteration in the incentives pertaining to property investment are unwarranted. Therefore, they have not outlined any policies to address the demand side factors affecting housing affordability.