HIA calls for tax reforms on housing

Australia’s peak residential building association has made seven recommendations to the government ahead of the May budget 2023 including reviewing taxes on housing, new policies for skilled migrants, and reducing red tape to housing.

As the Reserve Bank of Australia (RBA) is expected to continue its rate hikes as inflation peaked at 7.8 per cent in the December quarter, the building industry is feeling the brunt of slowing demand. 

Indeed, the past two years have served the construction industry with a plethora of challenges, from supply and labour shortages, spurred on during the pandemic, COVID-19 lockdowns, natural disasters, and access to land.

On the back of supply and labour constraints, economic forces such as rising rates and construction costs have weighed on demand.

In its pre-budget submission, the Housing Industry Australia (HIA) said the rise in the cash rate combined with rising construction costs was “eroding demand for new homes”. 

HIA data revealed that new home sales fell by 15.7 per cent in the September quarter 2022, which marked the “weakest quarter of sales since June 2020” during the national lockdowns.  

In addition, the Australian Bureau of Statistics (ABS) revealed that new total dwelling commencements fell 5.2 per cent to 45,489, while the total number of dwellings under construction reached record highs in the quarter ended September 2022 (Q3/22), reaching 244,279 up 0.6 per cent. 

Thus, while the high construction demand is cushioning the industry for now, the HIA has warned that the backlog of housing construction, fuelled during the pandemic, is starting to slow as demand for new homes eases. 

“The buffer of work that existed at the start of this cycle of increases in the cash rate is being eroded quickly as the number of homes commencing construction continues at pace, while new work entering the pipeline slows,” the HIA said.

“Given the pool of work yet to commence, the number of starts is expected to remain solid for the first half of 2023 before the adverse impact of the first rise in the cash rate is observed as a decline in housing starts.”

As such, the industry is calling for a number of recommendations ahead of the May budget 2023.

In particular, as housing affordability challenges are impacting an increasing number of individuals, the HIA has called for the government to work with state and territory governments to reduce the burden of tax on housing. 

As well as establish a dialogue through the national cabinet to investigate measures that would support state and territory governments to remove stamp duty and eliminate the cascading application of stamp duty on GST, development, and infrastructure taxes and levies. 

The HIA submission said new home buyers are “unfairly expected to pay a significantly and disproportionally higher amount of state and local government revenues”.

It added that projects routinely face delays from various approvals and ‘red tape’ that was “unreasonable”.

“As housing development is generally debt financed, these unreasonable delays add to the interest costs incurred by the developer which is passed onto new home buyers via a commensurate increase in the transfer price,” it noted. 

Thus, the HIA supports “broad-based taxation that collects sufficient revenue to provide necessary government services from the community and is not focused on a small cohort that undertake a particular activity, such as purchasing a home”. 

Given the backlog of building construction works and shortage of skilled trades, the report also recommended that the government consult with industry “to develop a visa that will enable the residential building industry to alleviate trade shortages through skilled migration”.

In addition, work to “examine the potential for industry sponsorship of skilled migrants” be progressed as highlighted in the outcomes of the Jobs and Skills Summit.

In making its recommendations, the HIA noted that while permanent and short-term visas are part of Australia’s skilled migration program, there has been very little take-up within the construction industry as “several aspects of these visas render them impractical”. 

The association’s seven recommendations included:

• Focus on reducing constraints to housing supply across the housing continuum 
• Develop sustainable immigration policies focussing on skills 
• Show leadership towards reducing tax on housing 
• Recognise the importance of attracting and retaining apprentices through mentoring 
• Allow builders to get on with building by improving the regulatory climate 
• Invest in programs that will improve compliance and innovation 
• A supply balance recognising the importance of both home ownership and affordable rental accommodation

[Related: Record high housing construction in September: ABS]