A new study has looked into how Labor’s property tax proposals would hit the country’s property markets and has found it would vary around the nation.
The RiskWise Property Research and Wargent Advisory study found Melbourne’s slowing house prices would fall by a further 9 per cent if Labor’s planned property tax changes were to come in.
In Western Australia, South Australia, Northern Territory and the Australian Capital Territory prices would drop by around 6-7 per cent and in Tasmania they would slide by around 3 per cent.
Modelling of the changes for the Sydney unit market found that’s the equivalent of if borrowing costs rose by around 20 per cent or more, or a hike to interest rates of 1.15 per cent.
Other parts of the country to be badly affected by the proposed changes according to the study would be Darwin, Mackay, Townsville and inner-city Perth which would all experience house price falls closer to 12 per cent.
These estimates to house price falls take into account the current factors driving down the market including tighter lending restrictions, reduced overseas investment, removal of tax deductions for landlords and the effects of the banking royal commission.
Labor’s proposed property tax changes are primarily aimed at improving housing affordability for Australian buyers but shadow treasurer Chris Bowen says the proposals should still be implemented even though markets such as Melbourne and Sydney are now in decline.
He says the changes are designed to make long term structural change rather than just making policy for the short-term property cycle.
The changes would include negative gearing being limited to new rental dwellings and halving the capital gains tax discount from 50 per cent to 25 percent.
Report contributor Pete Wargent told Australian Financial Review that if Labor were to win the federal election and bring the changes in, some mitigating measures might be necessary in those areas hit hardest.
“It would be a de facto tightening of financial conditions for households, with potential knock-on effects from that,” he said.
“While the stated intention of the policy was to cool housing markets – at the time in 2016 that was a hot political issue as in Sydney and Melbourne markets were running away – if you were to introduce it today, it would impact markets that are already struggling.”
The report states that if house price falls put downward pressure on new home building it could offset the improvements to housing affordability.
“The report concludes that while there would be some positive initial impacts on housing affordability, these would only be sustained in the largest capital cities if appropriate policies are implemented to encourage the supply of owner-occupier suitable housing in addition to investment units,” the report says.