New negative gearing modelling gets green light from property experts

In response, various heads of property-related businesses have agreed on the outcomes reported, which indicated that prices could decline by up to 12 per cent nationally, while rents could rise by up to 15 per cent.

Adrian Kelly, president of the Real Estate Institute of Australia, said the modelling “is a valuable contribution to the public debate”.

“The analysis in the report provides evidence of the impacts of the policy, identifies the losers and the extent of their losses,” he said.

“The losers are mum and dad investors, home owners, renters, the construction industry, state governments and the economy.

“There are no winners. Even first home buyers will face a faltering economy with lower employment prospects.”

Like the REIA and Mr Kelly, the Real Estate Institute of Western Australia and its president, Damian Collins, also welcomed the modelling.

He said that tinkering with one part of the tax system would be risky and impact everyday Australians the most.

“The report shows that it’s not the wealthy property moguls that would bear the brunt of this change; it’s the mum and dad investors, home owners and tenants that would be dealt the blow,” Mr Collins said.

“These report results are not entirely hypothetical either. In the 1980s when negative gearing was removed, these were the consequences experienced at that time in Western Australia. The impact was so great across the country that negative gearing was reintroduced just two years after it was removed.

“We must learn from history. Removing or meddling with one part of the tax system is irresponsible. Any changes to our tax system should be done holistically and include a full review of our entire tax system.”

Master Builders Australia’s Denita Wawn said that, due to the weaker than expected economic growth in the country, incentives to keep investment going should be kept and not discarded.

“This is exactly the wrong time to be discouraging investment in housing,” she said.

“Instead of just saying, ‘no, we can’t’, Labor needs to stop fobbing off and ignoring legitimate questions about the impact of its housing tax policy and rethink their policies.

“Housing market conditions are already in sharp decline — unfavourable policy changes would make things even worse. Even in the absence of NG/CGT changes, new home building starts are likely to decline from over 230,000 to about 175,000 over the next couple of years,” she said.

Ms Wawn also rebuked Labor’s notion that grandfathering negative gearing would balance out the negatives of their policies, as previous research indicates otherwise, she claimed.

“The evidence we do have from the Hawke-Keating era and Cadence Economics modelling is that there will be negative impacts on the housing market regardless,” she said.

“For example, the investment potential of grandfathered assets will be undervalued because all subsequent owners will have a 50 per cent tax increase on their investment.

“Treasury analysis (FOI 1876) that Labor quotes in support of its policies suggests that Labor’s policies to increase capital gains tax could compound upon a cyclical downturn in the housing market that may be underway.”

The end result of this research should indicate to Labor that they need to reconsider how their policies would impact housing and the economy at large before the upcoming federal election in May, she said.

“Labor conceived this policy in booming housing market — this is no longer the case. House prices have fallen by at least 15 per cent in Sydney, Melbourne and Perth, while new dwelling approvals and lending volumes are driving lower at some pace,” Ms Wawn concluded.