It is disingenuous for Labor to claim that its negative gearing policy would have a negligible impact on the housing market. Isn’t it the purpose of policy to have an impact? In reality, Labor’s proposal to restrict negative gearing to new housing and reduce the capital gains discount from 50 to 25 per cent for assets held longer than 12 months will have a negative impact on investors and renters. When you change the taxation of investment property there will certainly be consequences.
A Treasury assessment of Labor’s policy has been released after a Freedom of Information request. Treasury concluded there would be short-term downward pressure on property prices while in the long-term there would only be a modest effect on prices. Labor’s Treasury spokesman Chris Bowen says this runs counter to government claims that the impact would be greater. The truth, as is often the case, lies somewhere in between. There will be an impact on the housing market, as Treasury says, which would lower the value of housing.
What we do know is the people who will be most disadvantaged are those who are trying to save money to buy a home, because they will inevitably be forced to pay higher rent. An investor who loses a tax benefit will also be disadvantaged and seek to reclaim that loss. While most of the benefit of negative gearing goes to high-income earners, more than 800,000 people who declare a net rental loss earn about $80,000 or less. Most have only one negatively geared property as a modest investment. Many of these are also young people who cannot afford to be an owner-occupier.
If Labor had a more thorough approach to policymaking it might understand there are many factors that influence the cost of housing: lack of available land supply, planning system red tape, state and local government taxes and charges such as stamp duty, and mortgage insurance and bank fees. It all makes for a complex mix of policy challenges. Labor would be better off working with state governments to increase land supply, reduce taxes and streamline the planning system. That would be a real policy