The McKell Institute has released a paper arguing that tweaking CGT rules could deliver up to 130,000 extra homes during the #housingaccord period.
Instead of the flat 50% CGT discount on investment properties held for more than 12 months, McKell propose to:
1. Increase the CGT discount on new attached (unit) builds to 70% 2. Decrease the CGT discount on existing detached dwellings to 35% 3. Leave the CGT discount on new detached dwellings unchanged at 50%
In doing so McKell avoids some more deleterious changes suggested by others by:
✅ grandfathering all existing investments ✅ not changing negative gearing (which would be a greater drag on new #housingsupply) ✅ notionally prioritising investment into new housing with preferential CGT treatment – particularly attached units
This idea has garnered a lot of press, given the discussions around reform, and one can see why it seems attractive on its face.
That said, I see several problematic assumptions:
1. Capital gains on units – particularly "investor" apartments – have been virtually nil or even negative over the past decade. A 70% discount on zero is zero.
2. The report is silent on existing attached dwellings. Would their treatment be the same 35% discount as existing detached dwellings? If so, such units will be less attractive on the resale market, hindering capital growth potential and limiting interest. And ditto once a new investment property is sold to a subsequent buyer.
3. Few investors will buy family-sized apartments compared with a comparable detached homes. Low rental yields (relative to the high cost) and higher holding/ownership costs will outrun any concessional tax rate, given a lower likelihood of capital appreciation.
4. The modelled 5% annual investor shift away from existing houses towards new builds is optimistic and implausible based on this change alone.
I do assume the 70% is intended to apply to attached townhouses as well, which could be the right investor middle ground
Investors consider many things – rental yields, holding costs, expected capital gains and their net tax position. This might assist on the margins, but it doesn't address the real barriers to #housingsupply – #feasibility.
Unless the core issues – land supply, planning reform, construction costs, productivity, labour pool, developer taxes/charges – are tackled, it is a leap to suggest investors will start buying newly built attached dwellings en masse.
🤔Not to mention the apartments needed don't exist and wouldn't be completed for 3+ years from the date of such a change. i.e. zero chance of this delivering 70,000 new dwelling increase to 2030, let alone 130,000.
🔫Silver supply bullet – this ain't it.