The government’s new housing package aims to deliver a more sustainable housing market and support first-home buyers (FHBs) into homeownership. CoreLogic welcomed the new initiative but stated that its impact on the market would not be as significant as initially thought.
In the latest CoreLogic Market Impulse report, CoreLogic economists stated that the impact of the housing package on current owners of rental properties might be limited in the short term, and relatively few will push ahead with sales.
“For a start, we’ve calculated that for the 21,000 or so investor purchases with a mortgage in the past 12 months (average price paid of $820,000 and assumed 30% deposit), the extra cost is ‘only’ about $700 this tax year. On top of that, the figures will be less for those who have owned for longer or have lower debt anyway,” said CoreLogic senior property economist Kelvin Davidson.
CoreLogic economists predict that tax bills will continue to rise as the interest deductibility change phases in, emphasising that these are cash costs that need to be paid rather than the offsetting benefit of capital gains “on paper.”
“But even so, those capital gains have been substantial, at an average of $98,000 so far for those recent buyers (let alone what might continue to accrue in the coming months), far outweighing any extra tax. For further context, the first chart shows the dollar rise in average property values over various periods – for example, in the past two years alone, almost $159,000 (23%),” Davidson said.
“Indeed, this highlights another incentive for current owners not to sell (if they can avoid it) because that could trigger a significant bright-line liability. At a 33% tax rate, the $98,000 gain for those recent buyers is more than $32,000 tax, far costlier than the loss of interest deductibility. In addition, the low returns from other assets (e.g., term deposits) raise the question of what would sellers do with their released equity anyway?”
Davidson added that the lack of a big sell-off by existing landlords suggests no major change in the stock of rented properties, undermining the arguments that rents will skyrocket due to the new housing package.
“It’s also worth noting here that historical rental growth across existing tenancies has been pretty steady at around 3% per year for a fair while now, and even when rents on new tenancies have risen more quickly, peak growth hasn’t gone much above 5%,” he continued.
However, CoreLogic economists expect more significant impact on the mix of investor purchases.
“Indeed, the incentive to buy existing properties has been reduced, and there are now stronger reasons to look at new builds (which are exempt from the LVR limits, bright-line extension, and the interest deductibility changes). However, this might have the perverse effect of ‘crowding out’ first-home buyers, a group who have a higher market share for new-builds than all properties,” Davidson said.