How could tax changes reducing housing supply affect the RBA?
Rental inflation may rise due to supply shortages, influencing RBA policy decisions The tax changes, specifically negative gearing and capital gains tax changes in the federal budget, have discouraged investment in residential property, leading to landlords exiting the market and reducing housing supply. This reduction in supply has tightened the rental market, causing rental prices to rise significantly. Since Perth's rental growth serves as a key inflation measure for the Reserve Bank of Australia, these sustained price increases could alter the data the RBA uses when setting monetary policy.
- Effect
- Mild negative
- How direct
- Brind's reasoning
- When
- Within weeks
- The story
- No new developments lately
How it reaches RBA
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Tax changes in Perth are reportedly reducing housing supply and investor incentives. This has led to a tightening rental market, with rent increases reaching 141 per cent over seven years in some cases. Due to the tight supply, extended families and friends are increasingly grouping together to secure rental properties.
The full event1independent outlet -
The tax changes, including negative gearing and capital gains tax changes in May's federal budget, have discouraged investment in housing. This has led to landlords exiting the market, which reduces the overall housing supply available to renters. The reduced supply has tightened the rental market, forcing prices higher. For example, one renter reported a 141 per cent increase in rent over seven years, while the national rental vacancy rate was at 1 per cent in the September quarter. As Perth's rental growth is cited as a key inflation measure for the Reserve Bank of Australia, the sustained increase in rental prices resulting from supply shortages will alter the data inputs the RBA uses to assess inflation.
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The facts so far
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- Negative gearing and capital gains tax changes in May's federal budget had eaten away at supply.abc.net.au
- The tax changes have discouraged investment in housing, leading to landlords exiting the market.abc.net.au
- The national rental vacancy rate was at 1 per cent in the September quarter.abc.net.au
- One renter reported a 141 per cent increase in rent over seven years.abc.net.au
Why it matters
The RBA relies on accurate data regarding inflation to guide its monetary policy. If the housing market, particularly rental growth, is being driven by structural supply shortages caused by tax policy rather than purely organic demand, the RBA's inflation metrics may be skewed. This could lead to policy decisions that do not accurately reflect the underlying economic health of the country.
This issue highlights the tension between different policy goals. While the tax changes may be intended to free up housing for first home buyers, the resulting exit of investors and tightening of the rental market creates a significant disadvantage for the large portion of the population that rents into the private market.
What we don't know yet
- Will the RBA adjust its weighting of rental data if the supply shortage is proven to be policy-driven?
- Will state or federal governments introduce measures to stabilize rental supply and curb price increases?
What would change this answer
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Reporting
- abc.net.auSunday
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