RENTS will rise and house prices fall under the Federal Labor Party’s current negative gearing policy, according to new research by SQM Research.
The Labor’s negative gearing policy – a market update (2019) report found, from current forecasts for negligible rental growth, rents would rise 7 per cent to 12 per cent from 2020 to 2022, with Perth and Brisbane expected to record the largest increases.
From already falling house prices, there would be an additional correction of between 4 per cent and 8 per cent over the same three year period.
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READ NOWProperty sales turnover would fall further, resulting in a drop in stamp duty revenue of about $2.3 billion.
Housing construction and completions would fall over and above existing declines, amounting to a 25 per cent to 30 per cent decline from 2019 levels.
Given the existing falls in construction and the anticipated peak in infrastructure spend in 2021, this could have a large impact on GDP and employment in the economy.
Another issue would be the resale of new builds/off-the-plan purchases by investors.
They could be at risk of experiencing losses on the resale of a property, particularly in the first three years of its life, as any secondary buyer may demand some type of discount given they would not be entitled to receive negative gearing concessions on the property.
The report examined a range of scenarios including considering an interest rate cut.
SQM Research managing director Louis Christopher said there was increased consensus the RBA may have to cut rates this year.
“If we were to see a cut of say 50 basis points, this would provide some cushion to the effects of negative gearing changes,” he said.
“Even so, the market would still record dwelling price falls.
“Housing construction; already in a slump, would likely fall further due to the lack of investor demand.
“This would set up a shortage of housing come later 2020, based on current strong population growth rates.”
The report also reviewed the state of the market between 1985 and 1987, when Hawke/Keating government changed negative gearing rules and introduced capital gains tax.
It found rents rose over and above CPI increases in five of eight capital cities, with Perth recording the largest increase at 33.5 per cent.
Housing commencements fell in all states, recording an average decline of 23.7 per cent.
This reduced new supply relating to underlying demand and would have directly contributed to the large rise in rents at the time.
The REIA and Reiwa welcomed the report’s findings.
Reiwa president Damian Collins said tinkering with one part of the tax system was a risky move and the outcome of the changes in the 1980s must be considered.
“The impact was so great across the country that negative gearing was reintroduced just two years after it was removed,” he said.
“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.”
REIA president Adrian Kelly said there would be no winners if Labor’s policies were introduced.
“The losers are mum and dad investors, home owners, renters, the construction industry, state governments and the economy,” he said.
“Even first-home buyers will face a faltering economy with lower employment prospects.”
Mr Christopher said while negative gearing reform was a good thing over the long term, such reform should be executed as part of a wider property tax reform that should be phased in over time.
“Such a tax change during a housing downturn is in our opinion a risky move for the economy and so we encourage discussion on perhaps a phase in period for such legislation that would reduce the economic shock that this tax change could create,” he said.