Labor’s plan won’t achieve stated goals

Yesterday’s announcement by the Opposition that it intends to limit negative gearing to newly constructed investment properties will not achieve the claimed objectives of improving both the supply of housing and housing affordability according to the Real Estate Institute of Australia (REIA).

“The policy is built on the popular perception of the declining amount of investor loans committed to new housing construction relative to the total value of housing finance for established properties”, said Mr Neville Sanders, President of the REIA.

“Independent research commissioned by the REIA shows that around 27 per cent of all loans for the construction of new housing in 2014 were to investors and that this proportion has remained relatively constant over the last 30 years (refer to the graph below). The absolute amount of investor loans committed to the construction of new housing has increased by more than seven-fold since 1986”.

“Whilst supply is acknowledged by all as critical in resolving the affordability problem the proposed changes by Labor’s policy will do nothing to address it. If anything it may exacerbate the affordability problem.”

“Supply is constrained by a number of longstanding challenges including regulatory and zoning constraints and cost structures including taxing of building. These factors are not addressed in Labor’s policy”.

”As a consequence it is highly unlikely that there would be the supply response anticipated by Labor and instead many investors would exit the rental property market resulting in higher rents”.

“Should it be implemented this change is likely to add considerable turmoil and volatility to the rental property and housing markets. Further, it would probably not raise much additional tax revenue”.

“The proposal fails the general principle of good taxation policy that it should not favour particular investment classes. Limiting negative gearing to new dwellings will only add a distortion that reduces investment in housing, erode housing affordability and put upward pressure on rents”, concluded Mr Sanders.