Warning! Help Stop Labor’s Negative Gearing Changes - Price Falls and Recession Ahead?
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This message is for every property owner or budding property owner.
Labor's poorly crafted Negative Gearing Policy will not be good for most Australians. Help us show Labor the errors of this policy idea and your concern with it, by signing this petition.
- Help stop the job losses
- Help stop property price falls (for almost all property owners)
- Help stop rents from rising
- Help stop over-development and land values from skyrocketing in our city fringe suburbs
Labor's had some good policy ideas over the years, but this is not one of them.
Macro reform of this magnitude is nearly impossible to model, especially given that to accurately model any event like this, you need to determine what will be the behaviour of the market - and by market we refer to buyer demand versus property supply.
Australians should not be misled by Labor, Treasury or any third party's academic modelling indicating that negative gearing will only marginally affect property prices across the entire property market. Their modelling is flawed because it doesn’t take into consideration any big shifts in buyer behaviour. But what we do know from the study of market behaviour is that if you have an uncertain marketplace impacting its confidence or sentiment negatively, then demand drops and ultimately property prices fall.
By creating a two-tier market (new property versus old), just like the car market, as soon as you buy a new car and drive it off the lot, it's worth a lot less as a second-hand car, because it loses its demand/appeal. We can compare this to the potential effect of a change to negative gearing.
In PICA's view, and speaking with subject matter expertise as investors represent around 30% of the market's demand story, we have attempted to ‘play-out’ a couple of likely scenarios of investor behaviour that are clearly missing Labor’s modelling and all forecast modelling, to date:
1. The BIG LOSERS – The vast majority of Australians who own property.
Under Labor’s poorly thought through policy, negative gearing will still be available on newly built property. On face value that might initially appeal to attract property investors’ interest. However, if an investor is prepared to run a property at a loss (negatively geared) for a period of time, it is because they are counting on some capital growth during this same period. What’s the point investing at all if you are losing money, and the property isn’t growing in value? In short this compares to investing a $1, only to get 40 cents back in tax – it makes no sense!. Let's also not forget the tens of thousands of dollars the investor will be paying in interest each year.
Yet to achieve capital growth, you need more demand than supply in order to push property values higher over both the short and long term.
Here’s why it’s a bad policy:
Once a newly constructed property is bought, it’s instantly second-hand. If investors are no longer confident of achieving adequate returns, compared to the investment risk they are taking, they will invest elsewhere en-masse. That’s the equivalent of pulling upwards of 30% of the total buyer demand, out of the market. The net result is that underlying demand falls significantly, and the flow-on consequences are:
· Property prices will fall for investors, but, more significantly, for the 70% of owner occupiers who own the vast majority of the 9.8 million dwellings in Australia. No property owner is going to be happy about that!.
· Jobs will be lost – both directly (construction, materials, trades etc), and indirectly – (retail, furnishings, finance etc). The list goes on and on.
· The economy grinds to a halt - Labor will be responsible for breaking Australia’s world record of unbroken economic growth as it causes our first recession in over 27 years!
· Rents will rise as fewer new properties are bought, or built to lease – higher demand and lower supply.
2. The SMALL WINNERS – Property Developers.
Some property investors won’t stop investing in residential property altogether. Some will pivot and take advantage of the policy idea by becoming small-time land bankers and developers. You see under Labor’s policy, land content in the suburbs closer to any Central Business District (CBD) becomes even more valuable for developers, because most people want to live close to the action. So houses presently in one whole street will be scouted and grouped together for demolishing to make way for new units and higher density accommodation, changing the streets, neighbourhoods and natural appeal, forever.
Why? – Because investors can then manufacture growth and benefit from the negative gearing incentives for newly constructed property offered under Labor’s plans. Therefore some owners of inner city houses with land could be rubbing their hands together as they sell to the highest development bid. A great 'payday' for them as their property values skyrocket. However, those who bought into these appealing and convenient suburbs aren’t going to be so thrilled that their once lovely suburbs become over populated and congested.
It's worth noting this because those buyers trying to get into the inner city markets, thinking they could snag a bargain under Labor’s, or the Green’s, policy, for that matter, are going to be very disappointed and the politician's spruiking this message of cheaper inner-city houses, are totally misleading the public.
Some might argue “Surely this will create jobs and new supply?”, and it will. But overall, not to the size and scale needed to maintain the current booming job numbers, when you don’t have a 'two-tier' market (new versus old), which will be created, as a result of this policy.
The Property Investors Council of Australia (PICA) is NOT totally against any changes to negative gearing, capital gains tax or any other market interference from government. In fact, we support the introduction of regulating the property investment industry to provide greater protection for consumers.
We don’t, however, support Labor’s proposal for changes to capital gain taxes. But we do support potential reform to capital gains tax exemptions, to encourage long term investors and discourage short term speculators into the market, and to help add the much-needed rental property supply into the market.
We are an Apolitical association and we want to cooperate with all political parties in helping them to understand the importance of the residential property market, and in developing good, sensible and sustainable policy. And we will be vocal and call out ineffective and dangerous policy when we see it.
Labor’s proposed changes to negative gearing and capital gains exemptions is an ill-informed policy that is misleading voters and will not serve Australia well, either economically nor socially. This is the reason why we have created this petition.
Please put your voice to our serious concerns by adding your name to this petition.
To learn more about PICA, our Charter or to become a member of PICA, you can visit www.pica.asn.au
PICA is a non-profit public membership association for property investors, run by fellow property investors.
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