Rental surge and property shortfall if housing tax breaks axed and Greens rent caps imposed, modelling finds

Rents in capital cities would jump by $83 a week if housing tax breaks are abolished, according to modelling which finds rent caps would trigger a mass withdrawal of rental properties.

The Greens’ housing policies would prompt 450,000 rental properties to be pulled from the market, new modelling shows.

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Rents in capital cities would jump by $83 a week on top of regular increases if negative gearing is abolished and Capital Gains Tax doubled, according to independent modelling testing the impacts of Greens-inspired changes to housing tax breaks.

Based on international experience, new Adept Economics research found the Greens-inspired rent cap model could “prompt 450,000 rental properties to be withdrawn from the market”.

The modelling, commissioned by the Australian Institute for Progress, predicts “many landlords will sell rental properties, reducing their availability, while those that remain will be forced to seek higher rents to compensate for the tax changes”.

The election fight over housing tax breaks and rental caps blew up last week after Anthony Albanese claimed his government never commissioned Treasury on negative gearing modelling despite Jim Chalmers previously confirming he asked his department for analysis.

The Prime Minister has also come under pressure from Greens leader Adam Bandt who is demanding that a freeze on rent increases and phasing out negative gearing and CGT discounts be at the heart of any hung parliament negotiations with Labor.

Adept Economics director Gene Tunny, a former Treasury official and Centre for Independent Studies adjunct fellow who conducted the modelling after Mr Bandt announced the Greens’ election housing policies, said “removing negative gearing and doubling the CGT would result in higher rents over the long term”.

“This is because removing negative gearing and doubling CGT paid would significantly reduce the return on investment in property for investors. This will likely result in a significant reduction in the supply of rental properties,” Mr Tunny said.

The modelling suggests many landlords would sell rental properties and that available rentals would dry up, which could drive-up rents to compensate for tax changes.

Mr Tunny warned that significant rent increases could “materialise within two years as landlords seek to compensate higher costs, with the modelling predicting rents could be 11 per cent higher than they would otherwise be”.

The modelling claims this equates to $60 to $95 a week higher in capital cities, or an average of $83 a week.

Australian Institute for Progress executive director Graham Young, who was previously linked to the Queensland Liberal Party in the 1990s, said “renters are the new victims of housing unaffordability … (and) making it more expensive for purchasers to afford investment properties will only make their plight worse”.

The head of the Brisbane-based public policy think tank said rent increases had soared at almost twice the rate of general inflation, “and with house prices so high more Australians than ever are locked out of home ownership and trapped in rentals”.

The Adept Economics research also assessed low vacancy rates in the rental market, with the modelling indicating the impact of higher costs triggered by scrapping negative gearing and CGT concessions could be passed on through rent increases.

“Australia is currently tracking well below the level of dwelling completions necessary to meet the national housing target (240,000 a year, or 60,000 a quarter), meaning there is an even greater challenge to ensure ­sufficient rental supply in the ­future,” the research said.

Mr Tunny highlighted overseas case studies where rent prices caps failed in the US and Argentina. He said in San Francisco, “rent controls led to a reduction in available rental properties in rent-controlled buildings by 15 per cent”.

“This is likely indicative of the potential impact of rent controls in Australia. Given around 3 million households are renting their dwellings, rent controls could mean the withdrawal of around 450,000 dwellings affecting 450,000 households,” he said.

Mr Tunny said in Argentina, 45 per cent of landlords exited the market after rent control laws were imposed in 2020.