Report claims there’s ‘no evidence’ negative gearing changes will spark ‘slump’

SOME say this controversial plan will destroy Australia’s housing market. But others argue negative gearing “fearmongering” is “bollocks”.

IT’S one of Labor’s biggest policy proposals and is shaping up to be one of the defining issues of next year’s federal election.

But the ALP’s plan to reform negative gearing and capital gains tax continues to divide opinions long after it was first announced, as Australians are bombarded with conflicting opinions and reports on the controversial issue.

Under a new Labor government, negative gearing would be limited to newly built properties, with the Party also wanting to halve the 50 per cent capital gains tax discount in a bid to help Aussies buy homes.

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But while supporters say the plan would end the supposed unfair advantage now enjoyed by investors at the expense of first homebuyers, critics argue it also has the potential to damage the housing market.

According to the Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA), new modelling has shown the proposed changes “will decimate the property market”.

PIPA chairman Peter Koulizos said independent research commissioned by Master Builders Australia found the financial impact of the policy could cause a multibillion-dollar hit to already struggling markets.

“Property investors provide housing for 30 per cent of Australians at a time when spending on social housing is at an all-time low,” he said.

PICA chairman Ben Kingsley said: “There seems to be a fundamental misunderstanding of the laws of demand and supply in Labor’s approach to property taxation.”

And in an exclusive interview with news.com.au last month, Prime Minister Scott Morrison warned the proposed changes could even “invite a housing market crash”.

Critics say changes to negative gearing could cause a market crash, while supporters say it will make the system fairer. Picture: iStock

“If you now take the sledgehammer of negative gearing and capital gains tax changes — if you abolish negative gearing as we know it — then you’re inviting a housing market crash. And that’s good for nobody,” Mr Morrison said.

However, a new Deutsche Bank report has poured cold water on claims the plan would spark a “slump” in the construction of new homes.

According to Fairfax media, Deutsche Bank chief economist and report author Phil O’Donoghue believes Labor’s changes could actually cause a slight boost to new home supply.

“If a reduction in the ‘after tax return’ available to property investors was perceived as imminent, we would expect to see … a temporary surge in approvals as investors sought to access the ‘grandfathering’ clause in Labor’s proposed policy. As yet, there is no evidence of this,” Mr O’Donoghue said in the report.

“This lowers the likelihood of a ‘slump’ in dwelling approvals if the proposed policy is implemented, in our view.”

And Australian economist Saul Eastlake told Fairfax claims changes to negative gearing would speed up a drop in house prices were false.

“All that’s bollocks … If you’re an opponent now is never the right time to do it, and I think that should just be seen through,” Mr Eastlake told Fairfax.

Shadow Treasurer Chris Bowen has hit back at ‘doom and gloom’ scenarios regarding changes to negative gearing. Picture: Kym Smith

According to the official ALP policy, the reforms would come into effect “from a yet-to-be-determined date after the next election” and would “help put the Australian dream of home ownership back within the reach of middle and working class families”.

It claims ownership rates for people aged 25-34 have “spiralled downwards in recent years from 60 per cent to 48 per cent” and that first homebuyers represent just one out of seven home purchases.

Shadow Treasurer Chris Bowen told news.com.au Labor’s housing affordability reforms will help create a “level playing field” for first homebuyers.

“This is reform for the long term and of course vested interests who prefer the status quo will produce reports that support their point of view,” he said.

“The fact is more and more independent economists are arguing that the current market conditions are such that now is a good time to be implementing Labor’s reforms to negative gearing.

“Even the Australian Treasury has concluded that Labor’s reforms would have a ‘modest’ impact on house prices.”

Mr Bowen also pointed out house prices were already falling — under the Liberal government.

“As for the Liberal Party and its pathetic scare campaign on our reforms — Australians should take note of the falls in house prices, particularly in Sydney and Melbourne, over the last year or so,” he said.

“These price falls have occurred with Scott Morrison as chief cheerleader.

“The Liberal Party seems very comfortable with falls in house prices — as long as it happens under their watch.”

HSBC chief economist Paul Bloxham has previously said Labor’s plans could have less of an impact than critics expected.

“Investor interest is already cooling,” he told Domain earlier this week.

“If there was a time to make things change, it would be when this activity is already cooling.”

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