In the ultimate sign of desperation, the Morrison Government has rolled-out several real estate industry lobbyists to campaign against Labor’s negative gearing and capital gains tax (CGT) reforms. From The AFR:

“When you converge the royal commission and APRA regulation with a big fiscal policy change you are asking for trouble,” Mark Bouris said

The biggest lobby group in real estate, the Property Council of Australia, said the tax would curtail property as an investment option because new stock was only a small proportion of overall housing that investors can buy.

One of the top house price forecasters SQM’s Louis Christopher told the roundtable that if Labor’s negative gearing changes were implemented yields on investment properties would have to rise and and that would mean rents would have to increase.

The extraordinary gathering of interests now openly in cahoots with the Government against the public interest included VGI Partners Global Investments Noel Whittaker, RiskWise Property Research chief executive Doron Peleg, Property Investment Professionals of Australia chairman Peter Koulizos and Real Estate Institute of Australia acting chief Jock Kreitals.

Of course Labor’s policy would “curtail property as an investment option” –  That’s the entire point: to stop property investors from crowding-out first home buyers:


Housing Finance Share

As shown above, when investor demand falls, first home buyer demand rises. This is a good thing. Do we want Australians to become a nation of renters or home owners?

The bigger point that is missed by these parasites is that the overwhelming majority of so-called property investment – 90% – goes into established homes:

Housing Finance Commitments

Therefore, negative gearing does little to boost actual housing supply and lower rents, but rather raises prices and crowd-out first home buyers.

Moreover, Labor’s policy would channel negative gearing into new homes only, thus helping to boost supply and lower rents at the margin. In fact, several developers have admitted that Labor’s policy would be “a shot in the arm for what is a depleted off-the-plan market.”

Louis Christopher’s argument that “yields on investment properties would have to rise and that would mean rents would have to increase” is dumbfoundingly stupid.

Landlords in Australia already charge what the rental market can take. It is a “market” after all, not a charity. Landlords don’t keep rents low just because they receive negative gearing benefits. Nor will they be able to magically lift rents if/when negative gearing is removed, especially as supply lifts. Remove negative gearing and prices would fall, lifting rental yields. It’s basic economics.

Finally, now is actually a good time to implement Labor’s policy. Since investor demand has already cratered there’s far less risk of investor flight and widespread market disruption than if investor demand was running at the wild levels of two years ago.

What Labor’s policy will do, however, is prevent a future investor bubble, moderate the cycle, and boost the first home buyer share over the longer-term.

Locusts be damned.

Leith van Onselen, Macro Business,19 February 2019