MYTHBUSTER: 6 myths busted on negative gearing

News | May 14, 2019

By Adrian Pisarski: CEO of National Shelter and Everybody’s Home campaign spokesperson.

Negative Gearing and CGT – Vested Interests

The Real Estate Institute of Australia (REIA) and the Property Council (PC) claim the ALP’s proposed changes to negative gearing (NG) and capital gains tax (CGT) “will have negative impacts on mum-and-dad investors, homeowners, renters, the construction industry, state governments, and the economy,” REIA President, Adrian Kelly. Each statement is fact checked below.

Myth #1: Negative impacts on mum and dad investors

Against the majority who support change, political parties and vested industry interests claim that the proposed changes to NG and CGT will adversely affect “ordinary Australians” including “mum and dad investors” on modest incomes.

FACT:All existing property investors are protected from changes to their taxation arrangements and the policy is careful to continue allowing NG &CGT discounts to encourage new supply. Currently, over 90% of property investors invest in existing dwellings. The current settings have not added new construction and have certainly not produced affordable housing. Current benefits concentrate to high wealth individuals with multiple properties.

Myth #2: A “truck load” of reports oppose the taxation changes

FACT:The actual “Mini load” of reports are all paid for by vested interests and should be read with a critical eye. All independent analysis (a real truck load) including the RBA, shows how NG and CGT distort investment, rob the budget of revenue and lock out first home owners, it is intergenerational theft by tax distortion.  Most economists agree that current settings distort investment decisions and create barriers to home-ownership for first home buyers. Economists have consistently identified the need for change including the Henry Review.

Myth #3: House prices will plummet as investors sell 

FACT:Treasury advice to the government says the proposed ALP changes will have modest or no effects on house price. Analysts should ask, to whom houses would be sold if investors sell? Presumably to owner occupiers now renters. This means more people will become home owners not renters lowering rent pressure. Current market corrections are occurring in Melbourne and Sydney because these policies inflated demand, now corrected by stricter regulatory controls on investors.

It’s ridiculous to claim house prices will collapse when prices have been artificially inflated by tax backed investor demand for decades. Corrections in Sydney and Melbourne are occurring with these policies in place now. The property industry has never accepted that these tax settings inflate prices but now argue their removal will collapse prices.

Myth #4: Rents will rise

This is based on a confected analysis of rent movements after Paul Keating quarantined NG.

FACT:In most capital cities rents did not rise, an expectation in a general effect from policy change, except to a degree in Sydney and Perth, because of a shift of capital to share markets due to favourable conditions. The property industry says investors will sell or require more from renters because they cannot write down losses. However, if investors are selling renters become owners, this will remove them from the rental market, placing downward pressure on rents.

As all existing arrangements continue to be treated the same and new dwellings are eligible for NG there is no impact on rents.

Myth #5: The economy will suffer 

The REIA and PC argue that changes to NG and CGT will negatively impact the economy by producing a downturn in the property industry.

FACT:Treasury advice shows little impact on property prices. The changes will restore opportunities for first home owners and maintain tax concessions for investment in new builds. Most current investment is in existing property so isn’t adding new supply. Despite some record years we haven’t built to population growth, poor planning and current settings distort investment to existing housing.

FACT:CGT & NG changes raise revenue allowing the ALP commitment to build 250,000 new affordable houses over the next 10 years and offer a 15% tax rate for Build to Rent projects which boost the economy. We look at all the policies on offer not the selective bias industry have against specific policies.

Myth #6: Unemployment will rise 

FACT:Ending NG for existing properties, while allowing it for new supply will boost employment. Building 250,000 new affordable dwellings and concessions to Build to Rent boost employment. The community sector alone will add thousands of new jobs to build and manage 250,000 properties, as will Build to Rent. The building industry is famous for arguing the multiplier effect of every dollar invested in housing, they have conveniently ignored it on this occasion by falsely criticise one policy while ignoring others.

The campaign by the REAI and the Property Council flies in the face of logic and ignores the overwhelming balance of evidence in favour of adjusting NG and CGT settings. Since the Howard government changed CGT discount from an adjustment for inflation to a 50% discount, investors have increasingly dominated our housing markets. CGT discounts have driven investment for speculative capital gain supported by negative gearing. The reforms are essential to raise revenue, rebalance the housing market and to afford to build more targeted affordable housing.

Who will you believe?

Will you listen to those with a vested financial interest in maintaining the status quo, or National Shelter and the hundreds of Everybody’s Home partner organisations who have a vested interest in fair housing policies that create opportunities for all Australians to have an affordable place to call home?

The Everybody’s Home campaign has united the not for profit housing, homelessness and community sectors with the nation’s largest charities in calling for leaders to fix Australia’s housing system so that everybody has a home.