Flawed methodology. Bill Shorten said this yesterday and while I totally understand his honourable view, there are many other ways to go about helping first home buyers. What first home buyers want though is a good investment on top of being somewhere to live. If they felt they could lose money and it would be cheaper to rent, they would be happy to wait. The problem with Bills approach is that the best way to stop property investors is to attack interest-only loans, increase investment interest rates, slow down the banks and vastly reduce investor borrowing capacities. Coincidentally this is exactly what APRA has done over the last four years, and really it’s not worked its way through yet. That’s what is driving things down now. If you reduce someone’s ability to borrow money, increase the cost to do so, investors will not invest. When the royal commission plays out next year, it’s my belief borrowing money will become harder with substantial falls in how much you can borrow and in turn continuing falls in property values. If Bill is successful and it comes in from 1 July 2020, that will also be the time when the biggest expiry of interest-only loans will hit and finally, the royal commission should have worked its way through. Perfect storms require only a few ingredients
The income and tax statistics-based report by the Australian Taxation Office was published along with a coalition attack on Labor’s policy to phase out negative gearing.
Some 1.3 million Australians take advantage of the tax break on investment properties, with 640,000 living in coalition electorates and 570,000 in Labor-held seats.
Treasurer Josh Frydenberg said Labor’s property plan would punish investors, he told The Australian.
According to a nationwide seat-by-seat study by the government, the most recent income and tax statistics from the Australian Taxation Office shows that more people residing in Labor-held seats had negatively geared rental properties than in Coalition-held seats, in five out of the eight states and territories.
Josh Frydenberg said the ATO data showed that in the biggest property market, NSW, the number of people who negatively geared rental properties was divided equally among Labor and Coalition-held seats, with deputy ALP leader Tanya Plibersek’s seat of Sydney featuring in the country’s top 10.
The electorates with the highest number of investors were the two seats in the ACT, both of which are held by Labor.
The latest data shows about 254,000 Queenslanders claimed a loss in 2015-16.
Some regional Queensland electorates have been hit with huge slumps in property prices since the mining downturn, The Courier Mail has noted.
In Capricornia and Flynn in central Queensland, along with Dawson, which has a strong mining and tourism workforce, have about one in 10 voters who claim for a net rental loss.
In NSW The Telegraph published data from Treasury revealing 374,000 Sydneysiders are claiming the benefit.
“No real estate market will be harder hit by Labor’s ill-conceived property tax than the NSW market,” the Treasurer said.
Treasury data reveals about 10,000 people in each of the Labor electorates of Parramatta, Greenway, Barton, Sydney and Kingsford Smith claimed the tax discount.
The 8655 people using the concession in deputy opposition leader Anthony Albanese’s Grayndler electorate is more than the 8195 people in former prime minister Malcolm Turnbull’s old electorate of Wentworth, the paper noted.
Labor’s proposed rules apply to properties bought after the policy start date: either July 1 next year or July 1, 2020, depending on the timing of the next election.
The government claims that investors already holding negatively geared property will feel the impact of the grandfathered policy by trying to sell into a depressed market with less interest coming from investors.
Labor’s policy to restrict negative gearing to new dwellings – and to cut the capital gains discount from 50 per cent to 25 per cent – has come under sharper scrutiny, The Australian reported.
Master Builders Australia has warned that it would result in a $12bn hit to building activity in the sector and lead to 42,000 fewer new homes being built over five years.
There are 120,000 investors with three or more properties, up from 116,700 just a year prior.
This week the Westpac boss Brian Hartzer noted a factor weighing on property uncertainty was the Labor policy, although he stopped short of blaming the proposed policy as a reason for falling prices.
“Clearly negative gearing is a significant feature in investors’ decisions on property investment, or certainly, it has been over recent years. So a change in negative gearing policy would be viewed by many investors as a significant issue to be thought through before they make a further property investment,” Mr Hartzer said.
Two property investor bodies have attacked the federal Labour party’s proposed changes to negative gearing and capital gains tax, claiming it will “will decimate the property market”.
Independent research commissioned by Masters Builders Australia found Labor’s policies could result in a multi-billion dollar hit to the Sydney and Melbourne markets.
The Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA) said the party has a fundamental misunderstanding of the sector.
“Property investors provide housing for 30% of Australians at a time when spending on social housing is at an all-time low,” PIPA Chairman Peter Koulizos said.
“Contrary to media headlines, only about 70% of investors own one property so the concept of ‘greedy investors’ is not supported by the facts.”
The 2018 PIPA Property Investment Sentiment Survey found about 60% of investors believe their portfolio will be positively geared within the next five years.
Koulizos said that this shows that negative gearing is primarily a result of high transaction costs associated with real estate investment, rather than a strategy.
In the survey, 6% of investors said they were interested in buying a new property.
This means restricting negative gearing to brand-new dwellings would not increase supply, Koulizos claims
Contrary to Labor’s claims, its policies on negative gearing and capital gains tax will not increase the supply of new housing or create new jobs in the building industry according to new independent economic modelling commissioned by Master Builders Australia.
According to modelling prepared by Cadence Economics if Labor’s policies are implemented it will mean:
1. Up to 42,000 less new dwellings being built across the country.
2. Up to 32,000 less full time jobs.
3. Up to $11.8 billion less building activity.
4. Up to $210 million less renovation building activity.
Labor’s policies on negative gearing and CGT fails its own test. “Master Builders calls on the ALP to rethink their policies in the light of this new research and a changed housing market. Australia cannot afford for housing supply, building activity and employment to go backwards.
Cadence Economics was commissioned by Master Builders Australia to test Labor’s claims that its policy to restrict negative gearing to investments in new housing and halve the capital gains tax (CGT) discount to 25 per cent all properties will increase the supply of new housing and employment in the building industry.
The results of the modelling show that within five years of Labor’s property tax policy being implemented the construction of new housing would fall in all states and territories and employment would fall over the same period.
Labor has previously stated their policies would boost new dwelling construction “by thousands of new homes each year.”
On the other hand independent modelling by Cadence Economics shows that Labor’s policy would mean up to 42,000 fewer new homes would be built over the five years following the implementation of Labor’s policies, resulting in a reduction in the value of residential building activity of between $2.8 billion and $11.8 billion.
Home renovations would also be hit by an expected reduction of between $50 million to $210 million in activity over a five year period.
Inevitably this would mean a fall in employment which is expected to be between 7,200 and 32,000 less jobs across the country.
Finally, the context of Labor’s policies, namely an ‘overheated’ housing market no longer exists bringing into question the need for reforms to curb investor activity.