Labor’s negative gearing plan a ‘nuclear bomb’, Aussie John warns

Aussie Home Loans founder John Symond has described planned changes to negative gearing as a “nuclear bomb” that could tip the country into recession.

Aussie Home Loans founder John Symond has described Labor’s planned changes to negative gearing as a “nuclear bomb” that could tip the country into recession.

Speaking to The Australian, Mr Symond said the “unintended consequences would be astronomical” despite the pledge to grandfather existing investors.

“I don’t care whether it was Liberal, Labor or the Greens, if they come out with such a radical move that could tip the economy over, I’ll be outspoken,” he told the paper. “I am concerned that it would do so much damage — unemployment, higher interest rates — it could tip us into recession.”

Negative gearing refers to when the rental income on an investment property is not enough to cover the mortgage repayments and other costs, resulting in a net loss. The borrower can then use part of that loss to reduce their income tax bill.

Investors who negatively gear typically do so in the hope their property will increase in value enough to offset their short-term losses.

As property prices in Australia skyrocketed over the past decade, critics blamed negative gearing for fuelling the investor speculation boom.

Around 1.3 million Australians owned negatively geared investment properties as of 2015-16, collectively losing $12 billion.

Labor has vowed to restrict negative gearing to new dwellings only if it wins the 2019 election, while also reducing the tax break investors currently get when they eventually sell the property.

It believes the policy will help first homebuyers enter the market by easing pressure on house prices and encouraging new construction.

The Coalition has warned that with property prices already falling, Labor’s plan would come at the worst possible time, crashing the housing market and driving up rents.

Mr Symond agreed, saying the policy would “hurt the vast majority of Australians”. “Every home through every street will be impacted. You’ll have tens of thousands of people in negative equity,” he said.

“Bank balance sheets will be whacked and so funding costs will be higher. Banks will lend less, banks will earn less, share prices will fall and it will impact superannuation fund returns. It will be a nuclear bomb. There will be very little incentive for people to get into property.”

Speaking to Sunrise on Monday morning, Treasurer Josh Frydenberg seized on Mr Symond’s remarks, warning Labor’s policy was a “disaster”.

“It will be very bad,” he said. “The view of the economists, the Master Builders Association, Aussie John and many, many others is Labor’s policy will be a terrible outcome for people with debts in their own home, people who are even looking to get into the housing market.”

Mr Frydenberg insisted that the people who negatively gear are “not rich, 58,000 teachers, 40,000 nurses, 20,000 police and emergency services personnel who have put aside a little bit of money to have an investment property”.

The Australia Institute think tank has previously disputed that characterisation of the data, saying it “confuses the number of people who negatively gear with the size of the benefit” and that older, wealthier investors are the main beneficiaries of negative gearing.

Mr Frydenberg said the house price falls since last year were a result of the regulators doing the “right thing” and tightening lending standards. “We have managed the housing markets,” he said.

“From herein if you have Labor’s policy you will see prices go down dramatically. That’s not a good outcome. One is a managed (fall), listen to the experts, the other is a tax grab.”

‘STOP MISLEADING THE PUBLIC’

Prices in Sydney and Melbourne fell again in October to be 8.2 per cent and 4.9 per cent down from their respective peaks in August and November 2017, while the combined capitals were down 4.6 per cent over 12 months.

Various analysts have forecast top-to-bottom falls of anywhere from 5 to 30 per cent and above in different scenarios. While experts are split on the merits of Labor’s plan, it’s widely accepted it would dampen investor sentiment.

Last week, property market analyst Louis Christopher of SQM Research warned implementing Labor’s plan during a housing downturn was “very risky and may trip the economy into a recession”.

In his 2019 Boom and Bust report, he forecast declines of 20-30 per cent in Sydney and Melbourne if the changes come into effect in 2020.

That prompted an angry response from Shadow Treasurer Chris Bowen, who issued a statement late Thursday slamming “economically irresponsible doom-and-gloom predictions” and implying Mr Christopher was conflicted.

“Only a few years ago, Louis Christopher was supporting Labor’s reforms to negative gearing, so what has changed? We can only speculate,” the statement said.

“Economists without a vested interest agree that our plan is a responsible way to ease pressure in the housing market, to make sure that everyone is competing on a level playing field.”

Mr Christopher has now hit back, saying “Chris needs to do some research or stop misleading the public about me and SQM”. “Yes we are independent, because, professionally we don’t care if the market rises or falls,” he said.

“We research all asset classes, not just real estate. Under the negative gearing repeal scenario, the declines are more than just 3 per cent over and above forecasted declines. The range is total peak to trough declines of 20-30 per cent.”

Mr Christopher said he had “never specifically supported Labor’s negative gearing proposal” but did support eliminating negative gearing “provided it is executed in the correct way”.

That is, not during a downturn, not skewing off-the-plan property prices, and done over a longer period of time.

“We strongly hold to the view that executing Labor’s policy during a large housing downturn is risky for the economy,” he said. “Labor would be wise to hold off until at least the downturn has passed.”

While he believes the comments are potentially defamatory, he said he would not take action against Mr Bowen. “I think Chris has hurt himself with those comments more than he has hurt me,” he said.

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