Changes to negative gearing would be very bad news for new housing

How do you feel about the changes proposed for negative gearing by the Labor Party?

Of course you'd know by know that the Australian Labor Party has promised to abolish negative gearing on future investments in established property, and to increases the capital gains tax on new and established property investments. 

They say this will increase new housing supply and make properties more affordable for new home buyers, but that just doesn't seem to be the case.

Demand from property investors for newly-built housing will fall under proposed changes to negative gearing and capital gains tax, reveals new research from the Property Council.

The survey of more than 1,000 current and potential investors were asked how proposed policy changes to negative gearing and capital gains tax would influence their future investment decisions.

The key findings from the Property Council’s research includes:

• 33% of potential investors surveyed said they would “probably or definitely” buy a newly-built investment property in the next five years under the existing tax arrangements. This number drops to 24% under proposed changes.
• Current property investors’ intention to buy a newly-built property drops from 34% under current arrangements to 27% under proposed changes.
• Around half (49%) of all those surveyed would be discouraged from investing in property if proposed changes are made, while a further 42% would reconsider the type of property investment.
• Current investors would be the most discouraged from investing in property under the proposed changes (58%) compared to potential investors (40%).

It's the opposite of what Labor assumes

According to Property Council chief executive Ken Morrison, the survey results directly challenge a key assumption of the ALP policy: that changes to negative gearing would stimulate new housing supply and construction.

“The survey shows that investors will be less likely to invest in newly-constructed housing under the ALP’s tax changes, not more likely,” Morrison says.

“This is a critical new insight, because if less new housing is being created for people to rent it can only mean higher rents in the medium term.”

The proposed changes will discourage property investment

Around half (49%) believe that the proposed tax changes discourage them from investing in property of any sort, with current investors more likely to hold this view.

Nearly half of all current investors intend to “probably” or “definitely” buy another investment property if the Labor Party is not elected at the next election.

The survey also revealed a low awareness of the proposed changes to capital gains tax.

While 60 per cent of those surveyed were aware that the ALP proposed changes to taxation for investment property, only 19 per cent had a good understanding of those proposed changes, and 61 per cent were unaware that CGT would rise for some investments.

Morrison warned of the risks associated with making “big changes” to property tax policies at an “uncertain time in the property cycle”.

“The ALP policy was first announced a few years ago when Australia’s residential property market was in a very different state,” Morrison explains.

“Since then, we’ve seen banks tighten lending, changes to foreign investment rules and falls in residential property values in most markets.

“Housing construction is a major source of jobs for Australians. The last thing we want to do is make this worse.

“We are concerned that the proposed changes would drive away investors which will affect the supply of new and established property to the rental market which is essential for one-third of Australian households.”

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.