We’re calling for no blanket changes to national property tax policies
Changes to negative gearing and capital gains tax concessions will be a hot topic for debate in the upcoming election. Up until now, the conversation around changes to national property tax policies has largely centred around the Sydney and Melbourne housing markets, which recently experienced rapid growth in both median house price and rents.
Those vying for our country’s top positions seem to have little regard for the WA property market when considering such dramatic shifts in property taxation policy.
What does changes to negative gearing and capital gains tax mean for West Australian landlords?
WA will be hit hard by changes to negative gearing.
There are 330,000 West Australians who own at least one rental property.
There are 215,000 people in WA who use negative gearing to help off-set losses occurred through owning a rental.
While rents have become more affordable for tenants, the costs associated with owning a rental property have increased.
How changes to negative gearing will affect landlords
Many investors rely on negative gearing to help afford the ongoing costs of an investment property. With changes in lending standards, landlords now are often required to pay off principal on the loan.
This is increasing the costs of owning an investment property, making West Australian landlords more reliant on negative gearing to counteract any losses.
Without such a mechanism, many prospective property investors will reconsider if owning a rental property is financially viable, causing them to withdraw from the private rental market or seek alternative investment options.
The value of investor loans in the WA market has declined by 69 per cent since 2015 (see below graph), a result of unfavourable market conditions and investors lacking confidence in our local housing market. Any changes to negative gearing or capital gains tax will further deter investment in the WA property market.
A recent study by Newgate Research (January 2019) found that in WA:
How changes to negative gearing will affect tenants
As landlords are deterred from investing in property it will be tenants who ultimately feel the squeeze as a shortage of rental supply will push up rent prices.
The current Perth vacancy rate has declined to 2.3 per cent from a high of 7.3 per cent in June 2017. Any taxation changes that will affect supply will only drive down this vacancy rate further making it more difficult for WA tenants to find appropriate rental housing.
The recent SQM Research report into how the Australian Labor Party’s plan to abolish negative gearing, if elected, would negatively impact everyday Australians detailed the impact this policy would have on tenants.
The report shows rents would rise across the country by between seven and 12 per cent, with Perth and Brisbane likely to be the most affected.
REIWA is calling on all parties contesting the federal election to commit to not tinkering with negative gearing or capital gains tax until a full governmental review into the implications has been conducted.
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