Daily Telegraph 28 March 2019
Prepare for higher rents in Sydney if Labor’s Housing Tax is enacted.
The Housing Tax is comprised of two key measures: an increase in capital gains tax and a ban on negative gearing on future purchases of existing homes.
Now the state election is over, attention will start shifting to federal issues and both parties’ policies should be carefully examined.
Analysis of Labor’s tax policy has been aided by a new report from independent market researcher SQM which found Labor’s policy would not only increase rents but also drive down house prices.
The SQM analysis found rent in Sydney could increase up to 10 per cent, which means the cost of a unit based on median rent could go up more than $50 a week, or almost $3,000 a year. House prices could fall as much as 14 per cent, which could wipe as much as $127,000 from the value of a typical Sydney home.
Opposition Leader Bill Shorten and Shadow Treasurer Chris Bowen have made it clear they do not know when this policy would start.
The two reasons this plan will drive rents up are:
First, this is what happened last time.
In 1985, the Hawke Labor Government banned negative gearing. Rents went up in Sydney and by 1987, Labor was forced to reinstate negative gearing.
The ABC says “then treasurer Paul Keating did suggest that the abolition in 1985 had caused investors to leave the rental market, pushing up rents.”
The ban on negative gearing lasted only two years under a government that was prepared to take big risks to move Australia forward – cutting tariffs, cutting taxes and regulation.
If they could hold their mettle on tariff reduction which hurt Labor’s core constituency, surely the ban on negative gearing would have been sustained if it was the right policy?
Numerous commentators have pointed out that that rents went up in Sydney and Perth but not elsewhere between 1985 and 1987.
The problem is this new housing tax package is not the 1985 policy. The 2019 policy has a general tax increase in the form of a higher capital gains tax level and an oddball prohibition on negative gearing on existing homes.
The across-the-board tax increase in capital gains tax alone will ensure that rents will increase as supply will be constricted.
SQM’s research validates this point – they found rents would increase by 10 per cent in Sydney under this plan.
Second, higher taxes restrict the supply of housing.
The laws of supply and demand have not been suspended.
More tax on housing means there will be less houses built. It is pretty simple. If you want less of something, you increase tax!
Taking buyers out of the market means lower demand. Lower demand means lower prices.
Again, SQM’s independent analysis back this up. SQM found prices in Sydney would fall by 14 per cent under Labor’s plan.
In a market where house prices have been falling over the past 12 months, the market does not need any more excuses to reduce investment.
The Master Builders Association commissioned modelling to test the impact of the housing tax:
“independent modelling by Cadence Economics shows that Labor’s policy would mean up to 42,000 fewer new homes would be built over the five years following the implementation of Labor’s policies, resulting in a reduction in the value of residential building activity of between $2.8 billion and $11.8 billion.”
These statistics are in line with the centre for international economics study which says:
“Driving investors out of the market will force up the price of renting as nearly 25 per cent of rental stock is provided by private investors.”
The impact of higher taxes will roll onto the economy’s general wellbeing.
CIE also say:
“For example, if the government reduced the discount rate that is applied to capital gains by 50 per cent to 25 per cent, we estimate that the economy would be smaller each year by 0.2 per cent compared to the baseline (of no policy change). If this full effect of the policy was applied to today’s economy, it would mean GDP is $3.7 billion lower (nominal GDP was $1655 billion in 2015-16).”
The housing tax changes will likely repeat the 1980s temporary experiment and deliver higher rents in a smaller economy.
Ultimately we want people to invest in housing stock to increase supply. This is never going to happen when the alternative government doesn’t even know when their new tax would start.
Labor’s website says: “Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election... and Labor will halve the capital gains discount for all assets purchased after a yet-to-be-determined date after the next election.”
The Opposition Leader added "We haven't picked the final timing of that."
What a shambles. Renters should be mobilising against these changes before it is too late and history repeats itself.
Andrew Bragg is a Liberal Senate Candidate for NSW