After an alliance of community housing and welfare groups last week derided negative gearing as “unfair” and claimed it is pushing up house prices, a number of the real estate industry's leading voices have criticised proposed changes to the tax break and have claimed they would do little to improve affordability.
The Labor Party is currently campaigning on a platform that from 1 July 2017 would see negative gearing restricted to new builds only and reduce the capital gains tax discount to 25%.
Labor have framed their policy as a means to boost the economy and improve housing affordability, but Property Investment Professionals of Australia (PIPA) chair Ben Kinglsey disagrees the policy will have benefits on either of those points.
“The broader picture here is that property is such an integral part of the wider economy and you’re talking about playing with 30% of the market place, possibly up to 35% if market trends continue,” Kingsley said.
“There’s the risk in itself. [If] you take the confidence away from these investors who are in this space then you’ll be left with a bigger problem of slowing GDP, less construction jobs, less service jobs, less retail jobs because the reality is it’s all part of a broader interwoven economy,” he said.
By restricting negative gearing to new builds, Labor hopes to improve affordability by increasing supply, but Kinglsey believes the lure of a tax break will do little attract investors to housing stock that is unlikely to perform.
Kingsley said Labor’s policy would likely only encourage construction in sub-markets such as the already crowded inner-city apartment sector or in new estates on city fringes that are unpopular to investors.
“It’s easy to change supply in terms of high rises and medium density and house and land packages out on the fringes of a city,” he said.
“If you think about the market place, what is it telling us? How many renters want to live in medium and high density accommodation and how many tenants want to live on the fringes of the city where it takes them an hour or more to get to their place of employment?
“These claims of boosting the economy and investors are going to do everything for a tax benefit are just false.
“Investors still want to see capital growth, they want to see good, reliable tenants in the market place and they’re not going to see that when they see this type of policy implemented.”
While not supportive of the tax changes currently proposed, Kingsley said PIPA is willing to have a rational debate around the issue of property taxation, however they would like to see more in depth modelling produced on the potential impacts of any changes.
“The modelling that’s being done is at a macro level. You’re talking around 9.7 million dwellings growing at around 160,000 new dwellings a year. You’re trying to measure valuations that sit on the curve of $50,000 at the cheapest end of Australian property to $30 million plus on the top end.
“Naturally the law of averages says you can make some dramatic changes to valuations within that mix of property, but when you calculate that broader average it looks like a minute 0.5% or 1% variance, where as you could have 20% or 30% variances in either direction which are washed out by the law of averages.
“We absolutely say that we’ll come to the party and that we’ll debate the modelling, but the modelling has to be extensive and detailed and it has to be ground up.
“These professors and these economists who do these broad based models don’t have the knowledge and the intimacy of different market places and why investors choose certain types of accommodation.”
Kinglsey and PIPA’s objections to Labor’s proposals came on the same day Ray White Group director Dan White, First National chief executive Ray Ellis, Raine & Horne executive chairman Angus Raine, Harcourts Australia chief executive officer Marcus Williams Real Estate Institute of Australia (REIA) president Neville Sanders released a joint statement opposing Labor’s plans.
In their statement, the five echoed PIPA’s scepticism that Labor’s plans would improve supply and affordability and believed affordability issues would be better improved if upfront costs such as stamp duty were removed.
