May 2026 Budget
On the May 2026 budget on the tuesday evening when it came out, commentators were barking about the disagreeability of the budget to their particular point of view. But, the headline objections are the wrong ones, and don't explore the real second-order effects. We should instead expect to see an increase in first home ownership, permanent depression in home price growth, explosion in predatory secondary industries.
First, negative gearing is not as impactful as commentators will lead you to believe, and will not substantially affect property prices, although the drop in investor sentiment may in fact substantially affect property prices and current property owners. Most property owners who are owning their own properties are unhappy if the property is making a loss, even if it is ultimately tax deductible, and seek to reduce the degree to which they are making the loss by either offloading the property or otherwise increasing the cash flow position. Reflected in the negative gearing statistics is the fact that 1.1m people are currently making a loss on the property they own, which is ~50% of all property investors. Revoking negative gearing will reduce the economic incentives to purchase properties under personal names, but will not dissuade institutional property investors from investing in property, and will lead to higher growth in the superannuation asset class as money from housing is slowly transferred to the more tax beneficial asset class.
Furthermore, although the CGT discount will substantially affect the investment opportunities of trusts and individuals, it should not affect the ownership of properties through companies and superannuation funds, which are funds which can be indirectly controlled by the Australian government. Speculatively, this should lead to the superannuation industry, beholden to Australian regulators, being forced to turn its eye to riskier Australian assets under the watchful gaze of the Australian government. This policy is possibly the worst, in that it transfers a larger portion of the fruits of the ventures of private individuals to the government.
However, the Australian government is recognising that it is not a beneficial policy in case they would like to inject the startup industry here in Australia with more vigour, and so are undertaking further consultation.
As an aside, I expect VC companies to explode in popularity if this happens, as we ride the incoming AI wave. By mere speculation, the Australian government will consider legislation to force superannuation trusts to place a certain portion of their wealth into speculative Australian startups, in the form of VC companies.
Finally, lower investor demand should put downward pressure on prices, though owner-occupier substitution should keep them relatively stable. There will likely be a mere substitution of buyers from renting to buying, which will keep prices constant over time. The lock-in effect on existing holders could reduce turnover in established property markets for years, which indirectly constrains supply for buyers even if prices soften. Further, the grandfathering of negative gearing for existing properties and new builds, will ensure supply can continue to be grown to meet future housing demand.
Ultimately, the sum effect will be an increase in first home ownership, a permanent depression in growth in home prices, and an explosion in accounting and other predatory secondary industries, to nagivate the treacherous waters.