The debate around negative gearing is ramping up. I for one, strongly support negative gearing and believe if Labor is elected and this policy is introduced from 1 January, 2020, it will negatively impact homeowners, renters and investors. Here’s why.
To understand why, you must first understand that the housing market is very different to what it was four years ago when they first introduced this policy. In 2015, property prices were running hot and showed no sign of slowing down, especially in the Melbourne and Sydney markets. Fast forward to now, and property prices fell nationally by 5.1 percent last year.
So what will it mean for each person?
Homeowners are already experiencing a loss in equity in their homes from falling property prices due to other market forces at play. If you reduce the number of investors looking to purchase, this will exacerbate the falling prices, therefore reducing the wealth of everyday Australians who worked hard to purchase their home. Depending on what stage of the property cycle homeowners purchased their home, this could also mean that some people end up having greater debts than the value of their property, sending them into financial stress.
Private property Investors, who supply more than 2.9 million dwellings for rent will be less inclined to purchase, especially established housing in inner-city suburbs, therefore reducing the amount of stock available to rent. According to the ATO, 75 per cent of all private property investors are Mums and Dads with just one investment property who are trying to secure their financial future and self-fund their retirement, so they don’t have to rely on a pension from the government.
Renters will have less stock to chose from because there are less investors supplying rental properties. Therefore, based on supply and demand, rental prices will increase, especially in inner-city suburbs where there are minimal new builds being constructed. Furthermore, it’s worth noting that new investors who do purchase established properties will have to recover their losses which previously would have been offset by negative gearing, therefore they will charge higher rents to do that. Data from property market analysts SQM Research forecasts that Brisbane renters will potentially cop the sharpest rises with an increase of 22 per cent in rental prices, which could equate to more than $90 a week, or about $4700 a year, for a median two-bedroom unit.
The purpose of Labor’s policy change is about making housing more affordable for first home buyers and to ‘level the playing field’, however how will increased rental prices help this demographic save for the necessary home deposit to be able to buy in the first place?
Let’s learn from the past and not make the same mistake twice. Bob Hawke decided to remove negative gearing in 1985 and the negative effects of this decision were swiftly felt, and he therefore reinstated the policy in 1987.
It’s simple. Regardless of whether or not you are a private property investor, the effects of removing negative gearing will be felt by most.
Andrew Coronis is the Managing Director of Coronis Realty. His is the first of a series of blogs from Queensland franchise leaders sharing their insights into what the proposed changes to negative gearing will mean for our real estate market.
Support the united real estate sector’s call for policies that promote stability in the real estate market. Visit StandForStability.com.au and add your voice to ours. Download our shareable content here.