The Property Investment Professionals of Australia (PIPA) believes that the Australian Labor Party’s (ALP’s) proposed policy changes to negative gearing are hinged on insufficient economic modelling and incorrect assumptions. Moreover, the association believes that negative gearing has an important role to play in supporting Australian housing, Australian households and the broader economy.
Some of the key reasons as to why PIPA supports negative gearing and where it sees major concerns with the policy proposed by the ALP are:
The changes will hit average Australians – Property investment plays an important role in supporting Australians in their pursuit to be self-sufficient retirees and reduce the burden on the public purse to support an ageing population. Property investment is typically the domain of significantly more “mum and dad” investors, than wealthy investors. ATO data for FY13/14 shows more households earning between $60,000-$150,000 claim net rent than those earning more than $150,000.
And will hit hard – Residential real estate represents more than half of Australia’s household wealth (52%) and accounts for $6.5 trillion. Tinkering with housing policy, without appropriate and extensive due diligence, could seriously impact the wealth of all Australians and negatively impact greatly on market confidence and consumer sentiment, when the values of property fall under this policy.
ALP’s proposed changes will slow the market – With the ALP’s 50% increase in Capital Gains tax, it’s likely fewer investors will sell their properties. This will have a significant impact on state government revenues, including stamp duty, one of the biggest revenue sources for all state governments. Significant reductions in these revenues could force the state governments to request the federal government to look to raise GST for all Australians, to cover the big shortfalls in their future revenues.
ALP’s overall modelling is questionable – PIPA rejects the Labor Party’s claims that $32 billion dollars in net revenue will be saved over 10 years via their proposed changes. Such modelling does not hold up to the most current ATO data (2013/14) available and doesn’t take into account the recent reduction in interest rates, which make negative gearing benefits significantly less than forecast.
The proposed changes won’t solve inner city fringe affordability – Houses close to the city are in short supply and well protected by planning regulations. No change to negative gearing is going to magically create an instant windfall of new houses. This problem of affordability is consistent with all large cities around the world, many of which don’t have negative gearing at all.
And they won’t support new supply – Labor’s proposed removal of negative gearing on established housing is a poorly-informed policy that will drive property price reductions and even stifle new property development rather than encourage it. “New property” is only new once. Smart investors know a poor investment when they see one and they won’t buy these properties if there isn’t a secondary market for them. This will put many builders and developers out of work.
The proposed changes will see rents rise for two key reasons – With fewer new properties being built demand by tenants will exceed supply of suitable accommodation, causing rents to increase. Investors will also take the opportunity to recover some of the investment losses caused by the ALP policy decision.
Negative gearing supports the provision of housing -Negative gearing removes pressure on the government to provide social housing. Around 2.5 million rental properties are rented through private investors across Australia. Since June 1985, public sector completions have averaged just 4.9% of all dwelling completions and in 2015 just 1.6% of all dwelling completions were from the public sector. If Labor’s changes are implemented, state governments will need to find significant funding to cover rising demand for rental accommodation, as investors look to alternative options away from property.
We need a healthy property market – A downturn in construction and overall activity within the housing sector will have significant impact on GDP, direct and indirect employment. Research shows that one in four jobs is related to the property industry in Australia. Given the slowing state of the Australian economy right now, poorly thought-out changes to negative gearing will be catastrophic to jobs and economic growth.
NOTE TO EDITORS
The Property Investment Professionals of Australia (PIPA) is a not-for-profit association established by industry practitioners with the objective of representing and raising the professional standards of all operators involved with property investment.
Since its inception, PIPA has developed codes of ethics and conduct and professional standards of accreditation and education for the property investment industry, including a Property Investment Adviser Accreditation Course.
For more information visit www.pipa.asn.au
If you would like to speak to Ben Kingsley, Chair of PIPA, for further comments please contact:
Ph: 02 8248 3744