Peter Dutton makes Labour’s case. Tax breaks for homeowners should be limited to those who build homes

Opposition Leader Peter Dutton could have done us a favour.

As part of his budget response speech on Thursday night, he promised to stop foreigners from buying existing Australian homes.

Not only did he want to prevent foreigners from buying existing houses to live in, something they can do while they are here temporarily, as long as they sell them within three months of moving.

He also wanted to stop them buying existing Australian homes to rent to tenants. He wanted them to stop being owners. Not because landlords deprive us of houses to live in (they don’t), but because they deprive us of houses to own.

Every existing home that is owned by an owner is a home that is not owned by an owner-occupant. It’s mathematics.

Foreign investors outbid residents

Dutton said it was quite unfair to be in an auction “bidding against someone who has a lot of money and someone who is not an Australian citizen”.

Stopping foreign investors would help restore the “dream of home ownership.”

Here’s the favor. Dutton has made a point that is true for all investors. By bidding against people who want to buy existing homes to live in, they are driving up the price of those homes. When they manage to buy an additional home, they make sure the owner-occupant doesn’t.

Dutton has explained the math.

He has acknowledged that, for foreign investors, the figures are not large. They already find it difficult to buy existing properties. In 2021-22, the most recent year for which we have figures, only 1,339 foreign investors bought existing properties.

But he told 3AW’s Tom Elliott that if there was anything that could be done, no matter how little, he would “jump at it”.

Local investors also outnumber residents

There is something much bigger that could be done, which is to extend your idea to all potential investors: each one of them showing up at an auction for an existing property and bidding against someone who wants to buy it to live in.

It is difficult to think of reasons why investors should be supported in bidding against potential home buyers. In the quarter century since the overall capital gains tax rate was cut in half in 1999, investors have been supported by a particularly effective combination of negative gearing and capital gains tax concessions.

Photo of the lease agreement.
One in six Australian taxpayers are property owners.
William Potter/Shutterstock

A staggering 2.2 million Australians currently own investment properties – one in six taxpayers. Seventy percent of them own two or more investment properties.

In the census before the change, 25.5% of households headed by someone between 35 and 54 years old rented. In the most recent census it was 33.7%.

This is not due to a shortage of supply. This is because landlords have grabbed a larger share of supply at the expense of Australians who in previous years would have been landlords.

If that larger share had not been grabbed, hundreds of thousands more Australians would own the homes they live in.

Nobody opposes investors building new houses and increasing supply; certainly not Dutton. The two-year ban he proposed in his budget response speech would have only prevented foreign investors from purchasing existing properties. Nothing would stop them from building and releasing new ones.

This is how a broader Dutton-style plan would be designed that would apply to all investors. Labor ran one in the 2016 and 2019 elections.

Labor had a plan like Dutton’s

Under Labour’s 2019 plan, negative gearing – the tax break that allows investors to write off losses incurred by tenants from their wage income – would no longer be available to new investors, except those who actually provided new houses.

Work planned for

Put negative gearing to work by limiting it to new investment properties to help boost housing supply and employment.

Negative gear is not engaging at this time.

In March, the most recent month for which we have statistics, only 2,048 of Australia’s 16,948 property investment loans went towards new home construction. Most of the rest went to investors who were going to compete with prospective residents to buy existing properties.

The Labor Party says that is no longer its plan. In ABC Q&A on Monday, treasurer Jim Chalmers said he was “not attracted” to the idea of ​​changing negative gear.

However, he repeatedly stated that “there was no substitute for building new houses.”

What Labor proposed in 2016 and 2019 would have directed investors to build new homes.

It is worth doing both because it would help create new housing and because it would reduce the number of potential homeowners facing potential homeowners at auctions.

Jessica Whitby, outbid in the auction, in questions and answers.

One of the prospective homebuyers, Jessica Whitby, who was outbid at an auction in the electorate of Chalmers, called on Monday to “discourage people who are buying multiple investment properties to help first-home buyers get in sooner.” in the market”.

Chalmers responded that what mattered most was the supply, but he failed to mention that what Whitby was proposing used to be Labor Party policy, he failed to recognize that it would encourage supply, and he failed to recognize it (at least in theory). Dutton seems to agree with him.

Support from many sectors

And not just Dutton. Scott Morrison raised concerns about the “excesses” of negative gearing as treasurer in 2016. His predecessor, Joe Hockey, said as he left parliament that negative gearing should be skewed towards new homes so there would be “an incentive to increase the housing stock.”

It’s like almost everyone can see the kind of things that need to be done.

Australia’s negative gearing and capital gains tax concessions are incredibly expensive. Negative leverage alone costs the Treasury $2.7 billion a year.

At least in principle, there is agreement on how to make it work for us.