Capital gains tax under review: NSW tackles housing affordability

The New South Wales government wants to help make housing more affordable for first time homebuyers by reviewing its capital gains tax discount. 

The capital gains tax discount allows property sellers to receive a tax break when selling homes they’ve owned for 12 months or more. 

Specifically, if you sell a house after that time you only have to pay tax on half of the profit you make on it. Property investors tend to take advantage of this tax break. 

"These tax benefits of property investment have contributed to the growing housing affordability issue," said the submission NSW suggested.

"While the combined effect is likely to be a moderate increase in house prices, the most significant impact is the displacement of owner-occupiers (including first home buyers) from home ownership by tax-advantaged investors, predominantly those already on higher incomes."

Recently, the value of the Aussie housing market broke the $9 trillion mark, just five months after hitting $8 trillion. And the national average cost of a home sits at $719,209. In NSW, the average house price for residential property is above $1 million, and Sydney’s median house price is more than $1.3 million.

It stands to reason then that many experts believe the deep pockets of investors have played a big role in price surges of recent years. Mozo banking expert Peter Marshall would like to see the end of capital gain breaks for investors.

“The current rules give landlords a great incentive to buy properties that are available to owner occupiers, which pushes up prices and makes it harder for people currently renting to break into the housing market, meaning a plentiful supply of people who are stuck renting and paying the aforementioned landlords,” he said.

Housing affordability and other measures

Even with government and state incentives available for first time buyers like the First Home Owner Grants (FHOG), house affordability issues continue.

If you are a potential first time home buyer, there might be a chance you won't qualify for NSW grants because your home is too expensive. The FHOG puts a property value cap of $600,000 for those interested in the $10,000 grant. But with residential property averaging at $1 million, it is easy to see how difficult it may be for a first time buyer to break into the market without any help. Even with potential government aid right at your fingertips, many still cannot afford to buy homes.

The state government also wants to remove stamp duty, which is an extra charge you need to pay (a couple thousands) when buying your already ultra expensive property. NSW wants to replace it with a broader property tax.

At the moment there is no definitive plan on how the state will tackle current house affordability issues, but the Liberal chair of the housing affordability inquiry said that fixing the undersupply of homes available to purchase may improve affordability. Along with reviewing the current capital gains tax.

If you are a NSW resident wondering if you’ll ever be able to own a home, check out Mozo’s first time buyer guides so you can take the first steps in learning on how to make home ownership possible.