The Impact of Labor’s Policy, Quantified

The real estate sector says that Labor’s policy on negative gearing has been independently assessed and is shown to have far greater impacts on prices, economic activity and state revenues than previously thought.

SQM Research, a respected Australian investment research house specialising in residential property research, has released a research paper covering the potential price, rent and turnover impact of the Labor Party’s negative gearing policy.

“What SQM have done is examined Labor’s proposal and assessed in detail the consequences so there can be no claims that it doesn’t represent the stated policy as we have seen happen with other commentary, including that the industry has been accused of bias,” said Neville Sanders, President of the Real Estate Institute of Australia.

“The analysis covers prices, rents, sales turnover and state revenues from stamp duties and the modelling suggests that the consequences are more dire than many have suggested”.

“According to the research, prices on a national basis could be as much as 16% lower than otherwise over the three years 2018 to 2020. For some areas such as Sydney the drop could be 20%. This is a far cry from the 2% we have been told by other researchers,” said Grant Harrod, CEO of LJ Hooker.

“SQM points out that investors purchasing new property, as Labor hopes to achieve, may experience losses on a resale in the first three years of the property’s life. For owners that have bought houses on low deposits and the banks that have funded the mortgage this is particularly worrying,” added Mr Harrod.

“Sales of property are predicted to fall by between 17% and 20% in the first full year of scrapping negative gearing. Whilst the immediate impact of this is the employment of real estate agents the multiplier effects are tremendous and particularly so in regional areas where alternative opportunities are limited,” said Craig Gillies, Sales Director, Coronis.

“The lower sales activity will also mean state revenues through stamp duty collections are greatly reduced, with a predicted fall of $3.1bn to $4.1bn in state revenues. Either state services will need to be reduced or rates and other state charges will need to rise to compensate for the loss,” concluded Mr Gillies.

“SQM Research is recognised as being one of Australia’s most accurate property forecasters, so we welcome its modelling on the specific Labor policy, over and above any general modelling undertaken by a non-property industry participant,” said Ray White Group director Dan White.

“The SQM report in essence acknowledges and validates the position the industry has taken on Labor’s policy — that it will fail to do any of the things it purports to do and in fact will hurt all parts of our community.”

“We view this policy as irresponsible, particularly given Labor’s failure to model the effects of the policy themselves. The debate on negative gearing and housing affordability is one as an industry we’re want to have, but in short, the Labor plan is destructive,” added Mr White.

“A number of reports have been tabled over the past couple of days, which underline why it’s important for the health of the Australian economy to leave negative gearing laws for residential real estate in place,” said Angus Raine, Executive Chairman, Raine & Horne.

“Property is already a heavily taxed asset class. According to research from CoreLogic, while residential property investors wrote $3.719 billion off their taxable income, it’s estimated that they paid capital gains tax on $51.2 billion of profits made from dwelling resales over the 2015 calendar year and contributed significantly to the $45 billion in property related tax revenue collected by state and local governments.

“What’s more, property is already one of the more heavily taxed asset classes. Data from the ABS shows that over the 2014/15 financial year, state and local governments collected $45.203 billion worth of taxes from property (this includes residential and non-residential). This $45.203 billion in tax revenue accounted for a majority (50.6%) of all tax revenue to the state and local governments. With government deficits spiralling out of control, it seems counterproductive to take the knife to negatively geared residential property investments,” said Mr Raine.

“Negative gearing is a not a wealth creation tool used by the wealthy. Individuals with a taxable income of $60,001 to $70,000 are the most likely to claim a net rental loss and subsequently utilise a negative gearing strategy, according to CoreLogic. This proves once again that the vast majority of property investors are middle income Australians, simply trying to build some wealth for their retirements,” said Mr Raine.

“Shelter is a basic human need — like air, food and water. Australians need an ongoing, sustainable supply of decent, habitable shelter. ‘Everyday’ landlords and property investors, not just the wealthy, provide this shelter; and many do so because there are tax incentives.

Take the incentives away, investor motivation will disappear and a lack of shelter will affect people from all walks of life and from all financial levels. Where will they turn when the supply of rental properties dries up? There’s no talk of government stepping up to meet rental demand. The real estate industry is united in its stand on tax concession changes. I have particular concern for the almost one third of Australian who rent as too many will be affected,” said Michael Davoren, Managing Director, RE/MAX Australia and RE/MAX New Zealand.

“We have been steadfast in our view that Labor’s policy wasn’t in anyone’s best interest and recent reports and modelling now support our position. The fact of the matter is that Labor’s policy will not deliver the tax savings and economic windfall it is spruiking to win votes, nor will it solve the affordability issue. It’s a poor policy which will negatively impact too many Australian households financially,” said Ben Kingsley, Chair, Property Investment Professional of Australia.

“Labor’s policy is a risky one. We have seen the disastrous impacts of ill-thought out policy decisions before and it’s disappointing that Labor has not learnt from those mistakes,” said Leanne Pilkington, Managing Director, Laing + Simmons.

“The weight of evidence simply doesn’t support Labor’s position on negative gearing. Modelling shows investors negatively gearing property contribute to $45 billion in government tax revenues while only reducing their taxable incomes by $3.7 billion. It’s now essential that Labor release its modelling to explain how its policy won’t damage house prices, push up rents and destabilise the economy,” said Ray Ellis, CEO, First National.

To read a copy of the SQM Research report, visit this link.
The Real Estate Institute of Australia (REIA) is the national professional association for
real estate agents in Australia.