The Housing Industry Association (HIA) is urging the Australian government to abandon any changes to negative gearing and capital gains tax in this year’s tax review, warning that further instability would curb new home construction and worsen the nation’s housing shortage.

The call comes with the release of a new HIA report, Taxation of Housing, and its Impact on Supply, which argues that housing is already among the most heavily taxed sectors of the Australian economy. Taxes are applied at multiple stages of the housing lifecycle, the report finds, with new homes bearing a disproportionate share of the burden.

“You don’t fix a housing shortage by taxing housing harder,” says Tim Reardon, HIA’s chief economist.

“And you certainly don’t make homes more affordable by destabilising the tax settings that support new home construction.”

According to the association, government policy has repeatedly misidentified the causes of housing undersupply. Over time, blame has shifted from investors to foreign buyers and foreign investors, Reardon says, while governments continue to add charges and levies that increase development costs and reduce the viability of new projects.

HIA’s analysis shows that investors account for more than 40% of new homes built in Australia, with an even larger role in apartment construction and rental housing.

Measures that discourage investors, the national housing group argues, reduce overall supply rather than redirecting demand toward new construction.

“When you discourage investors, you don’t free up housing, you stop it being built,” Reardon says, adding that "higher taxes do not prompt investors to move from existing homes into new developments but instead push them out of the market altogether".

The report challenges claims that changes to negative gearing or capital gains tax would improve affordability or benefit first-time buyers. Housing prices are driven by supply and demand, HIA argues, and shortages can only be addressed by increasing construction.

“New homes don’t exist in isolation,” Reardon says. “They become established homes. Taxing established housing more heavily reduces the value of new housing as well, which makes fewer projects stack up.”

“More homes will only be built if governments stop treating housing as a revenue base and start treating it as essential infrastructure,” Reardon adds.

Image: Revenue NSW

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