Negative Gearing Affects Us All

The wider property industry (of which real estate is a big part) is the largest employment sector in Australia, providing around one in four of all jobs in this country.

If negative gearing is abolished, it’s estimated some $19 billion annually will be slashed from Australia’s GDP: that’s not rich people’s profits, but money that washes through the system in the form of consumer spending, which will mean more business closures and fewer jobs.

That means less tax revenue for the government, not more as claimed, as fewer people paying tax wipes out any “saving” from ending negative gearing.

It means less money for government to spend on services: unless they borrow it, that is.

It means more people requiring social housing, which in turn means even greater demands on government.

It means lower superannuation payouts for ordinary workers, as funds exposed to investments in residential property deliver smaller returns to their members.

It means fewer homes being built at a time of rapid population growth.

Whilst the economy would eventually recover from the shock, in the short term wiping $19 billion out of it could very well induce a recession, the effects of which go far beyond the property sector, wiping out jobs and businesses and livelihoods.

And why? Because some people are pushing the message that abolishing negative gearing simply equates to the removal of a tax lurk that will “hit the rich.”

A recession, which would shackle an industry that is vital for Australia’s continued transition from the mining boom, is quite a price to pay just for that – especially because it’s not even true that negative gearing is only a perk for “the rich.”

It just doesn’t make sense.

Negative gearing affects everyone. Why risk so much right now?

Authorised by Jock Kreitals, 16 Thesiger Court, Deakin ACT 2600

Copyright © Real Estate Institute of Australia 2016. All Rights Reserved.

10 thoughts

  1. The squeals of the rent seeking piggies makes me laugh!

    Your days are numbered.

    Affordable housing for young people.

    Bring prices down.

    End investor rorts.

    Invest in the productive economy.

    Get rid of negative gearing!

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    1. Thanks for your thoughts Jimmy, we suggest you read through the stats and reports on our site in more detail. This policy would not result in affordable housing for young people – to the contrary, rents will rise and while property prices will fall, young people will still have to come up with 20% deposits, and heavy state stamp duty fees. These are the real barriers to affordability for young people – repayments are actually much easier for young people today to manage as a % of take home pay than they were for baby boomers paying 18% interest. For example, if house prices fall, even by 10%, a $100K deposit only falls to $80K and stamp duty remains similarly high. Meanwhile, our economy gets smashed….

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    2. Jimmy, To start with I’m a ‘rent seeking piggie’ so let’s get that on the table. By the way, these days, that’s when I do actually get paid my rent, but we won’t go there. Right now, by virtue of the negative gearing that you so hate I see tenants getting a quite unbelievable deal on rents Vs the cost of buying a home. Rent vs salaries vs buying IS very VERY affordable. Without ‘rent seeking piggies’ like me who will provide all this ‘affordable housing’ you want? The government ? Have you done the numbers ? Do you realise that to a get $10K tax rebate ( the essence of negative gearing ) I have to already ‘LOSE’ ca $20K of my money first ? Believe me, renting residential property in Australia is no picnic for the rich. Look at the stats. If it’s such a great deal, why do 70% of investors STOP at just one property ? Just do the numbers and you will see why !! Bring prices down ? You mean like the GFC in the USA . Now, there’s a great idea ! Eight years later and we’re still ‘staggering; along ….. and don’t kid yourself limiting NG to ‘new properties’ is a soft option. Properties are only new once. Investing is risky. Every investor needs an exit strategy. Who will he sell his second-hand property to ?? The sale (and hence ) construction of new property will definitely suffer.

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  2. Firstly, I own a house. I have no mortgage.

    Doesn’t it strike you as strange… I mean patronising & with absolutely no surprise… that this campaign comes from a conglomerate that profits from the sale of real estate & increased housing prices? It’s a reasonable suggestion/ compromise (as much as I hate to say it) from the labor party to restrict negative gearing to new construction.

    Overall, the bulk of residential housing is a basic societal need, so save the investment speculation for an asset class that is not benign, actually produces something new & changes society for the better.

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    1. Hi disenfranchised liberal, thanks for your comments. The real estate industry derives its commissions from transaction numbers not house prices – if prices were high but nothing was selling the industry would be worse off than of prices were low but lots of houses were selling. We are very concerned about our industry if this policy is enacted because we believe it’s going to hit us hard and by association, our customers. Because we are Australia’s largest industry this will in turn shake our entire economy.
      Major developers are speaking out against this policy too as they do not believe it will create a construction boom – to the contrary, Mark Steinhart Ceo of Stocklands is on record saying it is likely to create a recession. Please, take the time to look carefully beyond the claims made by the policy makers and follow our blog if you’d like more detailed information – there will be more coming very soon.

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  3. Gratten modelling states an average 2-3 % price falls nationally, but in areas of high negative gearing, such as regional coastal areas, it is admitted that those impacts may be higher. And that markets tend to overshoot, so initial impacts will be greater again. So how much devaluation, know one can answer. Bill Moss ex head of Macquarie Group property division is on record saying 30 %. Sounds rich. Or is it. post GFC we saw the Central Coast beachfront sales fall 45%. Markets are volitile. Whilst the inner CBD may have a solid buyer base to take up the exit of investors, the regionals do not have an employment or high salary base to uphold market values. Considering some coastal tourist towns beachside apartments are predominately investor to investor sales, these markets will collapse, but again do not have the permanent employment to allow home buyers to finance their purchases. And whilst affordability for first home buyers is an issue, almost a third of the country rent, and will continue to do so. Many by choice or circumstance will never qualify for a loan, even if the current values were halved. Whilst it’s great spin to talk up pushing the investors into new housing, the reality is those new properties are generally more expensive. This is knocking out a lot of current investors, with increased borrowings, that they will not qualify for.So again the limited number of new rentals, that do get bought, will be at a higher rent. That’s just logic, so rents must rise.
    Investors are not stupid, they soon realise that the new unit or house they have purchased, now has a limited resale value, with the only market being owner occupier, to pay hopefully a premium value to their original purchase price. So we will not see the promised new building boom. All the construction bodies HIA MBA , Property Council have all come out against the changes. If construction was going to be boosted, they would support Shortens claims. But they are not. I
    The impacts on tenants rents and the impacts to regional areas, both prices and construction employment, are being completely ignored, in this inner city dominated debate.
    Unfortunately property construction rates need added investment to produce valuations above current construction costs. Take the investment away and it’s the countries tradies that suffer. It’s not the rich vs the poor in this debate. It’s the academics vs the tradies.

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  4. Very easy to knock something, not so easy to provide a solution. If the problem is that it’s too difficult for first home buyers to get into the market as house prices are too high. What is your solution without throwing tax money at them? Which then expands prices further anyway

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  5. Again another blurb from you that implies negative gearing will go

    QUOTE
    If negative gearing is abolished
    UNQUOTE

    That is not the proposed policy.

    Current negative gearing grandfathered and protected.

    Future negative gearing for new construction.

    Simple

    Please do not make false implications within these blurbs and then say but we mention it on the website. Nobody looks past the original post on fb they take your words as fact biased and missing information as they are.

    Try including all the facts then denounce the policy

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    1. Hi Wayno, thanks for your advice. It’s hard to capture such a complex message in a few words. But then, the greens policy is to remove all negative gearing, which we also oppose. We’ve been advised that if Labor gets in on a hung parliament, they will likely have to do a deal with the Greens to get the policy though, which would see all negative gearing abolished along with all capital gains tax discounts, even for existing investors. But try explaining all of that easily!

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