Negative gearing changes won't cause recession: CoreLogic RP Data's Cameron Kusher

With elections looming and negative gearing a big issue, predictions abound of a dip in home sales. So, what could we expect in the short term?

According to CoreLogic RP Data research analyst Cameron Kusher, market activity had slowed in 2016 relative to 2015.

"With housing looming as a large election issue given the proposed negative gearing changes from Labor I would expect things to be a little quieter in the lead-up to the election than they otherwise would have been," says Kusher.

"Interestingly, if Labor are elected you may find a surge in activity (whether that be buying or selling) post-election as owners look to beat out the negative gearing changes coming into effect in mid-2017. Of course any further changes to interest rates over the year could also have an impact."

On whether the proposed changes to negative gearing may make it difficult to sell investment properties and have other possible flow-on effects, Kusher had this suggestion for investors.

"Firstly they should make note of the election result. If the changes were to occur we would expect to see some jostling by investors to sell true investment-grade stock prior to the changes. As you note, the proposed changes are likely to be damaging to the resale value of true investment-grade housing stock."

He also dismissed suggestions that the changes to negative gearing could cause a recession.

"I don’t think a recession is likely from changes to negative gearing."

"The truth is no one really knows the impact until if or when the changes are made. Remember that at the end of 2013-14 only 9.7% of taxpayers were negatively geared so it is unlikely that impacting on such a small proportion of the population could cause a recession.

Kusher said the true impact was difficult to gauge till changes actually occur, but some "educated guesses" might be made:

• Before the changes a proportion of people will look to sell true investment grade stock prior to changes, conversely, some may also look to buy this stock if they have a plan to hold for the long-term
• Post changes, investment grade stock will be less appealing to investors because NG is not available so it will impact on this product’s resale value
• While the proposed changes look to funnel demand to new investment, remember new housing is often more expensive than existing so there is no guarantee that it would be a successful policy
• Over time, we may see rental shortages appear due to less investment or in certain geographic areas where little new development takes place.