Repeal budget tax changes now to avoid housing supply crash: Coalition

Shadow Treasurer Tim Wilson says the outlook for the housing market has become so dire that the government should immediately repeal its property tax reforms, citing plunging auction clearance rates and RBA predictions of a supply slowdown.

Money flowing into new housing surpassed expectations this year, bolstering Labor’s critical housing agenda. But the RBA downgraded its outlook last month and predicted dwelling investment to fall about 2.5 per cent from late next year until 2029, casting doubt on Labor’s target of 1.2 million homes.

The bank used its statement on monetary policy to attribute the drop-off to the “ongoing housing market downturn”, caused by interest rates rising more than predicted and worsened by the effect of Labor’s looming property tax changes. Property analysts including Cameron Kusher have described the combination as a “perfect storm” that would make some new housing developments unprofitable.

Shadow treasurer Tim Wilson said it was becoming clear that Labor’s budget forecast of 35,000 fewer houses as a result of the investor clampdown had underestimated the effect on market sentiment.

“The treasurer needs to do a complete U-turn on the taxes in his federal budget or we will see a continuation of rents rising [and] housing supply falling,” Wilson told this masthead.

The opposition has shifted from arguing the removal of tax concessions was an “attack on aspiration”. Such a message could fall flat with people locked out of housing. Instead, it is more often focusing on the prospect of lower supply and higher rents.

Wilson made the comments on Sunday as data from property tracker Cotality showed national auction clearance rates hit 44 per cent, the lowest figure since April 2020 when lockdowns were in place. The number of auctions held in capital cities is more than 40 per cent down on a year ago and has been declining since before the budget.

Labor welcomed data last week showing that loans to investors were falling more quickly than loans to first-home buyers after years of investor tax breaks worsening wealth inequality. Prices in Sydney have already fallen more than 10 per cent from their February peak, making the correction the steepest in decades, with no signs of easing.

Government ministers acknowledged the changes to negative gearing, the CGT and trusts were always likely to draw opposition. They would benefit voters in the long-run if more young people could buy homes, Labor has said.

Wilson, however, made the point that housing affordability was getting worse under Labor because interest rate rises were counteracting any benefit from lower prices. The Coalition’s promise to repeal Labor’s tax changes would punch a hole in its budget forecasts, on top of a $220 billion tax cut that is not fully costed.

Data to be released later this week on real wages, which have struggled for years, and unemployment will indicate whether the RBA needs to raise interest rates again. The ongoing war in Iran, an AI boom, high federal and state spending, and weak domestic productivity have combined to keep prices elevated.

Prime Minister Anthony Albanese, in the Philippines for the ASEAN summit, said on Sunday that many nations were grappling with high inflation.

“Inflation had a 2 in front of it in the Philippines at the beginning of this year. It now has a 7 in front of it,” he told reporters.

Employment Minister Amanda Rishworth defended Labor’s economic record on Sunday amid calls to lower spending in the mid-year budget update. This masthead reported last week that Labor was examining scaling back a tax subsidy for EV purchases, along with a subsidy for home batteries.

“Inflation has bounced around over the period of our government. Obviously, we inherited an inflation number that had a six in front of it,” she told News24’s Sunday Agenda.

“When it comes to unemployment, we still have historically low unemployment and jobs are being added to the economy.”

Focus will turn to Labor’s tax agenda in the coming fortnight as the government expects to pass its 30 per cent minimum tax rate on discretionary trusts with the support of the Greens. It will also seek support for its digital duty of care, which imposes new safety obligations on tech platforms, and gas reservation rules.

The Australian Chamber of Commerce and Industry, the Housing Institute of Australia, Master Builders and the Property Council have written to senators to argue that discretionary trusts were commonly used by family-owned businesses who would probably now find it harder to build.

“As drafted, the bill will increase compliance costs, reduce flexibility and undermine the risk-management approaches many builders rely on,” the letter said.

The government’s big-ticket policy to turn around years of underinvestment in affordable housing has also been attracting criticism.

Treasury’s housing chief, Ben Rimmer, when questioned in a senate committee last week by opposition housing spokesman Andrew Bragg, would not explicitly commit to hitting the government’s target of building 30,000 homes by 2029 under the Housing Australia Future Fund.

The RBA’s research made clear that the weaker housing market was making it harder for developers.

“Consistent with the usual lags, early indications of a softening in residential construction activity have become visible in recent months following the declines in established housing prices,” its statement on monetary policy said.

“HIA new home sales, a leading indicator of dwelling demand, have declined materially, and many builders in the liaison program have reported a decline in enquiries, buyer conversion rates and sales.”