Eslake vs HIA on negative gearing

By Leith van Onselen

In case you missed it, attached is an interesting debate aired last night on ABC’s The Business  on the merits of negative gearing.

In the one corner is Saul Eslake, chief economist at Bank of America Merrill Lynch, arguing (as I have done) that negative gearing is a wasteful policy that simply inflates house prices, without boosting housing supply and improving rental availability or affordability.

In the other corner is the Housing Industry Association’s (HIA) chief economist, Harley Dale, arguing that negative gearing is a non-issue.

An interesting outcome from the debate is that the HIA appears to have softened its stance. Previously it has argued that removing negative gearing would reduce housing supply and push-up rents, whereas in this interview Dale concedes that allowing negative gearing only on new builds would boost supply “at the margin”.

Anyway, see what you think.

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Comments

  1. billriskasMEMBER

    Saul Eslake handed Harley Dale his arse on a plater after kicking it around the room last night. Good to finally see intelligent commentary vs drull from HIA for all to see the current NG is a serious crock of …… making Australia seriously unproductive.

    It will be an interesting budget reveal come may budget day.

  2. Saul seems to get tangled up in the issue of NG for new-builds only discriminating against diferent asset classes…and then says a full removal will be too hard. It plays straight into Dale’s obfuscating BS.

    A smirking Dale thought he did a good job.
    Opportunity lost.

    • Though Dale scored an own goal by stating it was the biggest asset class using gearing. So if we’re going to be holistic, housing is where the most of our focus should be given its weighting in the mix.

  3. Dale is throwing all asset classes into the Neg gearing debate, trying to mobilise all different asset class investors to his cause. Maybe it should be banned on them too I don’t pretend to know.

    What is obvious though is those assets don’t directly affect the affordability of Shelter, & I’ve never been able to live in a share or a bond……….. & why I see it as a different proposition – Unlike Dale!

    • One of the problems with NG for housing is that the finished house is an unproductive asset – it doesn’t add to the productive capacity of the economy.
      Borrowing to invest in a business actually does increase the productive capacity of the economy therefore there needs to be a distinction between those investments.
      Another problem is that there is an opportunity cost involved. Every dollar put into housing speculation (let’s face it, NG for housing is using taxpayer cash to subsidise losses in the short term in the hope the capital gain outweighs those losses) is a dollar not invested elsewhere

  4. It is clear that the HIA is not interested in builders, they are interested in those builders that joined the party early and became rent seekers.

    The new generation of builders and trades should trash this bunch and start one that represents their interests.

    I’m just finishing a big reno, and i can tell you the cost of the land was a MASSIVE factor in me not having much money left to do the building work i wanted to do.

    • Actually, the HIA is probably akin to the Pharmacy Guild.

      There is no reason why the young professionals should be part of the scam, they are just getting had like the rest of society.

      • A builder of reasonable efficiency would pocket more if we ended Stamp Duty and replaced the revenues lost by removing exemptions from State Land Tax. It can be argued our tattered SLT allows builders more flexibility on sale timing, but this feature/flaw is completely overwhelmed by the sheer cost of stamps.

        Harley Dale’s stance is contrary to the interests of his constituents.

  5. Good to see this issue is getting more mainstream airplay, that is not just hysterical shrieking from the vested interest festering spruiker professional.

    Maybe, just maybe something good will come in the budget

  6. Gee Harley, how big are those land banks being held by some of your members? Are you cracking the whip on them or encouraging them as they drip feed tiny increments onto the market? Crocodile tears, please! That rash is called Saul-itis………he was all over you.

  7. here’s to grandfathering negative gearing. because somehow, some way, we’ll find a way to make the next generations pay for baby boomer largess. here’s a benefit we had. it’s unsustainable. so we’ll stop it. for you. we still get to keep it.

    • +many

      The boomers have been shafting the next generations for decades. Neg gearing doesn’t suit them any more it’s gone.

      Population ponzi does – expect increase.

  8. ‘…HIA appears to have softened its stance.’

    HIA heard a few counts from the ref in that war.

  9. Problem is counting residential property as an ‘asset class’ when it produces nothing towards GDP, unlike share and stocks.

    • I don’t think ‘bubbled’ stock and shares are productive- look at the US and QE with its negligible impact on the real economy. Your stock of physical assets like, research facilities, factories, machinery, products/services that people want to buy and trained human resources are what creates value and this pool or assets is in decline.

  10. People always seem to forget you have to actually lose money to be a negative gearer. What you are doing is getting the government to take part of the loss – which of course distorts risk.

    Unless you are making heaps somewhere else negative gearing just isn’t sustainable or useful except as a short term measure to help bail you out of trouble. It is a really risky strategy trying to use it in the hope you will clean up with capital gains somewhere far down the track.

  11. Neville Gearless

    Good on Tiki for mentioning NG for new builds only would help HIA members.

    My take home from the vid is the HIA are desperate to keep NG. Why? Why the desperate obfuscation?

  12. curl of the burl

    Good debate. Saul Eslake wields facts like a ball and chain.

    Negative gearing is just a huge transfer of wealth.

    That money doesn’t come from nowhere, it comes from people’s taxes. Tax payers that don’t have enough income/equity are propping up wealthier investors so the investors can price the rest of us out of the market. And it’s all going into existing housing.

    The idea is ludicrous and for any legitimate government, who supposedly has the people’s best interests as a first priority, to let it continue is incompetent at best, criminal at worst.

    Shelter is a basic necessity and is required by all Australians. Owning your own property is usually a prerequisite for many things, but for the majority of Australians, to getting married and starting a family.
    When you take that stability away, it adds a massive amount of uncertainty to people’s lives.

    For the people who dare jump on the hideously overpriced housing ladder, the economic burden has a big effect on relationships and makes having ANY kids a very difficult proposition. And for the large amount of divorcees, the financial fallout of selling and breaking up assets is crushing.

    But if people can’t secure this basic need, especially at any sort of reasonable price (3.5x median single annual income) they are far less likely to get married and have children as well.

    Hence why you have the government importing housing demand from China, India, America etc. which puts a further divide on our society. Where usually prices would revert to the mean as Australians would just opt out of something that is unaffordable as basic financial common sense dictates, we now get this wealth gap growing larger through the various prop-ups.

    We also see the landscape of our communities changing rapidly as more and more wealthy foreigners exacerbate the problem both economically and socially. Which is certainly not their fault but that of the government for allowing it.

    So which ever way you look at it, house prices to the moon has a huge negative effect on our society and the economy.

    Trying to pretend otherwise is spectacularly ignorant and short-sighted.

    • The massive swing from Labour to capital is the force to be reckoned with. Younger people are just collateral damage. The minority of enriched boomers are just the few that got lucky by chance and not design. (and their offspring eventually will benefit as per old world societies) The control of resources of all kinds is becoming concentrated in fewer hands and not a single western government is working against this process.
      Globalisation (including buying up your housing) is just one of the tools in this process and is also ignored by those who should know better. The majority of the population cant see past their noses and have become easy, unwitting victims of these well orchestrated schemes to defraud us all.