Renters, Small Time Investors And Economic Activity - Biggest Losers Of A Change In Negative Gearing Policy

Experts warn that small-time investors,  renters and economic activity are set to take a big hit if Labor wins the upcoming federal election and implement their proposed changes to negative gearing policy.

If elected on May 18, Labor plans to scrap negative gearing concessions on established property purchased after 1 January 2020 in a bid to level the playing field and combat housing unaffordability in Australia.

According to the Leader of the Opposition, the objective of the proposed change is to target wealthy individuals with large portfolios.

“I choose to shut down loopholes,” Mr. Shorten said, “I choose to not support giving a property investor a subsidy for six houses.”

To put things into perspective, however SMATS Group Executive Chairman, Steve Douglas clarifies that, “It’s not property tycoons that are the mass [property] owners, it’s average people.  There are 2 million investors with 2 or 1 properties. There are only 20 thousand with 6 or more.”

“The average negative gearing claim in Australia was $1,683 in 2015-16 [and] it dropped to $1,512 in 2016-17 because interest rates were low and dropping, and rents go up a couple of bucks per year and people can’t afford to buy any more properties.”

Negative Gearing Analysis

(Steve Douglas, SMATS Group,14th Annual Australian Budget Review Seminar)

Ultimately it the change is legislated, Mr. Douglas insists it will be renters who feel the pinch.

“If you stop allowing (landlords) to claim that $1500…then what they will do is they will say they need an additional $30 bucks a week in rent.

“It won’t be the landlord you hurt, it won’t be the government, it will be the tenant,” said Mr. Douglas.

What’s more, a turbulent 18 months in the Australian property landscape, fueled by a difficult lending environment and cooling property prices, could be further depressed if the new policy comes into play.

Geared for Growth Property Podcast host, Mike Mortlock suggests that a policy born in 2015 is now out of touch with the current market place.

“APRA stepped in and took a lot of the heat out of the market. We’re now looking at a declining market and these fundamental changes could put us into recession,” said Mr. Mortlock.

REIA President, Adrian Kelly is also highly critical of the proposed changes and agrees that landlords will not be alone in feeling the effect.

“The REIA has always been concerned with the impact the policy would have on housing markets, buyers, renters and economic activity.

“There is almost truckloads of analysis and reports showing the adverse impacts of the policy on mum and dad investors, homeowners, renters, the construction industry, state governments and the economy.

“The latest SQM Research showed that: house prices would drop between 5% to 12% on a weighted average for the capital cities for 2020 to 2022 over and above any other falls being experienced; rents are expected to increase by between 8% and 15% on a weighted average for the capital cities for 2020 to 2022; housing construction activity will fall by 25% to 30% from 2019 levels, which; will have employment and GDP impacts; property sales turnover is forecast to fall by a further 12% to 15%, resulting in; a drop in state stamp duty revenue of approximately $2.3 billion.” Mr. Kelly said.

So while Labor’s rhetoric claims that the target of their proposed policy change is Australia’s 20 thousand “property tycoons” with 6+ properties,  experts suggest that if implemented the fallout could be felt across the board.