Tax Changes Won't Fix Housing Prices, Says Economic Expert

The anticipated changes to negative gearing and capital gains tax discount in Tuesday's federal budget highlight a fundamental challenge facing Victorian property developers: policy interventions may not deliver the housing affordability outcomes many expect.

Economist Alan Kohler, author of The Great Divide: Australia's Housing Mess and How to Fix It, suggests the measures "will not in itself bring house prices down" despite being designed to tilt the market balance from investors toward first home buyers. This assessment carries particular weight for Victorian developers who have been navigating market conditions shaped by investor activity and affordability pressures.

The Reality of Price Expectations

The housing price-to-income ratio tells a sobering story. From approximately four times average incomes in 2000, the multiple has reached nine to ten times today across Australian markets. Kohler's prediction that prices are unlikely to return to historical ratios suggests Victorian developers should plan for a market where current price levels represent the new baseline rather than a temporary peak.

This reality points to a structural shift in housing tenure patterns. An increasing proportion of Australians may rent throughout their lives rather than transitioning to ownership. For Victorian developers, this trend indicates sustained demand for quality rental accommodation and build-to-rent projects, particularly in well-connected locations.

Beyond Metropolitan Density Solutions

While Melbourne continues to pursue urban densification, Kohler's analysis highlights the limitations of this approach as a standalone solution. His observation about Geelong's development constraints due to commuting difficulties to Melbourne reflects a broader challenge across Victoria's regional centres.

The emphasis on transport infrastructure to regional areas presents opportunities for developers willing to look beyond Melbourne's established corridors. Fast rail connections to centres like Bendigo could unlock development potential in locations currently considered too distant for regular commuting. Victorian developers monitoring infrastructure announcements may identify emerging markets before they become saturated.

Skills Shortage Implications

The construction industry's skilled labour shortage affects every Victorian development project. Kohler's point about trade qualification recognition from countries like India and China reveals a systemic issue limiting workforce expansion. Current migration patterns bring people from these countries, but their trade qualifications often go unrecognised in Australia.

This qualification recognition gap represents both a challenge and potential opportunity. Developers may need to factor longer construction timeframes and higher labour costs into their project planning. However, any policy changes that improve qualification recognition could provide relief to the sector's capacity constraints.

Planning for Policy Reality

The political shift toward addressing housing affordability reflects public pressure that has intensified since previous election cycles. However, the gap between policy intentions and market outcomes means Victorian developers should base their strategies on economic fundamentals rather than anticipated policy effects.

Developers might consider how their projects serve the emerging rental market while maintaining appeal to the owner-occupier segment. Mixed-tenure developments that accommodate both ownership and rental models may prove more resilient to policy changes and market shifts.

What Developers Should Watch

The budget details will reveal the specific mechanics of any tax changes, including implementation timelines and exemptions. Victorian developers should assess how these changes might affect their project financing and investor interest.

More broadly, infrastructure spending announcements could signal which regional areas might benefit from improved connectivity. Transport projects often have long lead times, creating opportunities for developers who position themselves ahead of improved accessibility.

As reported in The Conversation, the policy changes form part of a broader intergenerational equity theme, suggesting sustained political focus on housing issues regardless of immediate price impacts.

The message for Victorian property developers is clear: plan for the market as it is, not as policy makers hope it might become.