Labor's negative gearing policy will see investors buy established property ahead of next Federal election

Labor's negative gearing policy will see investors buy established property ahead of next Federal election
Labor's negative gearing policy will see investors buy established property ahead of next Federal election

There was a silly suggestion the pickup in last weekend's Sydney clearance rate to 59 percent followed Scott Morrison's elevation to Prime Minstership.

But with a dismal 31 percent auction success rate in the Sutherland Shire, that perhaps needs a rethink.

Most economic trends only come after a lag, as the RBA Assistant Governor Luci Ellis recently observed.

But I do expect there will be a sharper focus on housing affordability among politicians between now and the Federal election.

Maybe the next election will even see a marked debate over negative gearing policies unlike the last. 

The recent Federal budget was light on housing initiatives, but Scott Morrison's 2017 budget saw a raft of measures.

Some were pitched at getting headlines, some aimed at long term structural changes, and some pitched as softening demand in what was then a peaking property market, which also happened to help the budget bottom line.

Morrison has been the most attentive to housing affordability of any treasurer in recent times.

He gave a keynote speech last year that noted housing affordability is not a new problem, pointing out, he like anyone in Sydney had actual experience that it has never been easy to buy a home. 

Morrison's first property purchase cost $330,000 with his wife, Jenny, bought in Bronte in 1995, where he grew up as a child, and then they upgraded to the Shire at $920,000 in 2009.

He rightly suggested, dealing with housing affordability must involve a scalpel, not a chainsaw given the likely or even unintended consequences of policy shifts.

He warned declining housing affordability can't be answered with lower economic growth especially as some two million taxpayers have an interest in a residential investment property.

Around 1.3 million of these taxpayers negatively gear, as mum and dad investors put a roof over the head of around a quarter of all renting households in the country.

Morrison has noted the Labor policy disrupting negative gearing would come at a cost, not only for investors but also to the households who rent. 

It was interesting for him to suggest previous governments had avoided dealing with many housing issues "for fear of raising and disappointing expectations."

There are some who argue the long run of low interest rates along with reduced price growth has lessened the need for the provision of negative gearing benefits.

Lower interest rates have cut the cost of money investors borrow and – as a result – the losses being claimed on tax.

But there will be a time when investors will seek out the opportunity.

Taking the prospect of the benefits away will lessen the demand for property.

Labor says its intends to reform negative gearing and the capital tax discount from a yet-to-be-determined date after the next election.

Subject to legislation, investors will likely not be able to use net investment losses on existing properties to offset wage income. And the capital gains tax discount on an investment property will be reduced to 25 per cent.

They have advised the negative gearing changes will be for existing homes, not newly built homes.

It is important to note Labor states that investments and tax arrangements already in place will not face retrospective impacts. 

So I expect there might just be a pickup in investors seeking out the opportunity of buying established property ahead of the election, given the possibility of a Labor win.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

Tags: 
Politics Negative gearing

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