Scott Morrison repeats negative gearing lies

By Leith van Onselen

The negative gearing ‘whack-a-mole’ continues today, with the following false claims from Minister for Social Services, Scott Morrison, who said the following in a speech yesterday to the Institute of Public Affairs:

For those seeking to buy their own home, the price has more than doubled the increase in wages over the past 25 years. More than 30% of family income is now required to meet median loan repayments, breaching a commonly accepted housing affordability threshold. The ratio of owner occupied housing debt to disposable income is now more than 90%, up from 55% in December 2000.

The supply of housing is simply not keeping up with demand. While record low interest rates is extending credit to more home purchasers, the lack of stock is forcing up prices.

Fortunately for renters, wages and rents have moved largely at a similar pace to wages and rents as a proportion of gross household income remain well below the 30% affordability threshold.

In Australia, private rental accommodation is supported by a large pool of mum and dad investors making private rental stock available, through negative gearing. By number, almost 80% of these investors are middle income Australians earning $80,000 a year or less, owning just one property. They are school teachers, police officers, nurses and office workers saving and investing to provide for their financial security. In the Europe and the US, it is large institutional investors who often play this role. They are absent from our housing market.

Let’s dissect Morrison’s comments.

First, the “supply of housing is simply not keeping up with demand” and “the lack of stock is forcing up prices”.

If this is the case, where is the sense in juicing housing demand via generous tax settings like negative gearing and the 50% capital gains tax (CGT) discount?

The correlation between increased investor demand and rising house prices is clear as day, particularly after negative gearing was reintroduced in the late-1980s, after the CGT discount was introduced in 1999, and currently:

ScreenHunter_8406 Jul. 20 08.48

What about Morrison’s claim that “private rental accommodation is supported by a large pool of mum and dad investors making private rental stock available, through negative gearing”?

The data clearly shows that nearly 95% of investor mortgages are for existing dwellings, not new construction:

ScreenHunter_8391 Jul. 17 13.08

Hence, negative gearing and the CGT discount are clearly not adding to housing supply and are merely substituting homes for sale into homes for let.

Negative gearing and the CGT discount, therefore, are not lowering rents, but rather helping to push house prices up. And this increased demand from investors is clearly crowding-out first home buyers seeking a home for owner occupation:

ScreenHunter_8410 Jul. 20 09.24

Finally, Morrison’s claim that “almost 80% of these investors are middle income Australians earning $80,000 a year or less, owning just one property” is clearly false.

Morrison has conflated gross income with taxable income as reduced by negative gearing. Average taxable income, according to the ATO’s latest taxation statistics, is only around $55,000, almost 50% below the $80,000 threshold identified by Morrison. Hence, someone earning $80,000 in taxable income is a relatively high income earner, not a so-called “middle income Australian”.

More importantly, the RBA’s submission to the House of Representative’s Inquiry into Home Ownership clearly debunked Morrison’s argument:

Tax data also show that the incidence of property investment and the incidence of geared property investment… increase with income…

ScreenHunter_8352 Jul. 15 16.48

While the incidence of property investment increases with the level of income, the Household, Income and Labour Dynamics in Australia (HILDA) Survey also suggests that most investor households are in the top two income quintiles. These households hold nearly 80 per cent of all investor housing debt…

ScreenHunter_8353 Jul. 15 16.50

So, the top 40% of income earners hold nearly 80% of all investor mortgage debt, according to the RBA.

The negative gearing lies continue from the Abbott Government.

[email protected]

Comments

  1. Lol. This is getting hilarious. There is obviously some serious lobby money paying for these lies, I doubt they will be too pleased to watch them deconstructed each day.

    Great work UE!

    • SoMPLSBoyMEMBER

      So true AJ. The ‘enemy’ has been detected ( but not captured yet) in the Temple of Debt and the Imperial Guards are looking pretty silly as they continue to be confounded by this unexpected and ferocious intellectual foe.

      Keep up the barrage UE until the ref steps in to stop the match or the towel comes over the ropes.

    • Yup, this mob isn’t sitting to govern.

      They’re sitting to tell us lies while their mates loot the country.

  2. Josh MoorreesMEMBER

    Unfortunately until the MSM picks these up on a daily basis these will largely remain in this echo chamber and remain the purview of ‘fringe bloggers’

  3. The interpretation of the Housing Finance Commitments chart is suspect and while is doesn’t negate the argument that MB make, it’s support for MB’s investor argument is nowhere near as strong as expected. If anything, it may be highlighting other forces that may be affecting the market.

    The main reason for this is that the change in stock for investor mortgages in any period is way less than either the approvals or commitments data. There are only three ways to match the flow and stock data (of which I am aware and am happy to stand corrected): high outright principal repayment rates, refinancing, or conversion to OO. The third is unlikely as I am unaware of any way that lenders can effectively track property usage post purchase. The first implies a principal repayment rate that (do the math!) that means that investment loans are paying out within 6-8 years on average (again this is inconsistent with reality). Which leaves refinancing as the driver for the volumes evident in investor approvals & commitments. And as the lend is a refinance, it necessarily has to be against an established property. The key question then, is what is driving the refinancing?

    Happy to discuss further offline

    • Broker Churn to free up more equity

      +

      Lower rates from non-bank online lenders who don’t pay brokers

      The stronger the financial position (those in the top 40%) the better the refinance deals are available. Even some banks throw crazy deals at the HNW and UWNW investors to keep them. This will (eventually) flow through to the big 4 bottom line and they’ll jack up their costs for the bottom 60% who will be screwed…..again……as they have no ability to refinance in a falling market….unless Mum or Dad prop them up some more….or more government “incentives” or stimulus! Yay!

      Round and round we go….weeeeee

      • +1. Also “The stronger the financial position (those in the top 40%) the better the refinance deals are available. ” this will get even more prominent with the new APRA increased capital requirements i believe as in better discounts for low LVR loans due to banks aiming to keep their margins as high… so savers and high LVR loans will suffer even more

  4. rents have moved largely at a similar pace to wages .
    Really! You mean…. rents…. are income dependent, not debt dependent? Who could have guessed ! Now. Scrap Negative Gearing as see how rents then vary compared to income……they won’t!

    • …and add this to the structural mix: in this country, with its “houses economy”, wages are a strong function of mortgage debt…

      …now that’s a tangled web not many speak about when comparing wages to rents, prices, and mortgage debt – that the chicken and the egg are responsible for eachothers’ existence, so to speak…

      That is some serious structural sensitivity there!

      Ugh.

    • Janet
      Very good & I try and tell RE investors the same.
      Many don’t understand this – thinking that rents should be rising in concert with property prices.
      As you point out – rents are wage dependent, price growth (at present) debt fuelled.
      When we estimate fair value we always use rent; a 5% vacancy rate & a 5% gross rental yield. On that similar basis, many investment properties are overvalued.
      We have found that the typical rental affordability benchmark of 30% of gross rental household income spent on rent, has dropped to be between 22% & 25% – due to rising costs – HECS; higher general costs & also more sharing options via flat mates or gumtree.
      I enjoy your MB comments.
      Cheers
      Michael

      • We have found that the typical rental affordability benchmark of 30% of gross rental household income spent on rent, has dropped to be between 22% & 25%

        Can you please give more details on this?

  5. Morrison is a turd in a suit. He lied about border protection issues, manipulated aged pension data to suit his purpose and now his pants are on fire over NG. Who would have guessed?

    But don’t despair. David Koch on Sunrise this morning told us that the young have never had it so good, completely ignoring the fact that Sydney prices exceed London. His advice to his own adult children is to stop the overseas holidays and dining out………apparently this adjusts one’s ability to get into the market……..after all he started out with a flat in Ryde…….and now look at me! Little wonder the guy was culled from financial services and is now a talking head on daybreak television……it doesn’t stop him chattering on but.

    Seriously, the evidence is out there , but even the petrified brains of the LNP advisors understand that any tax adjustments/reforms now while the economy is in steep decline is going to further damage any chance of recovery, so don’t expect change anytime soon. Doesn’t make it right, but just sayin.

    • Ever since I watched David Koch report on MH-17 minutes after it crashed, I stopped watching Sunrise and 7 news.
      David is a “mouth for hire” kinda guy… he will peddle the truth for the correct (higher) fee. Unfortunately, seldom people pay to peddle the truth unlike otherwise.

  6. surflessMEMBER

    The question is to Institute of Public Affairs, being a temple of free market capitalism, how can you allow such a speech to occur in first place ,and secondly allow the speech to go unquestioned?
    Is the Institute of Public Affairs corrupt?

  7. Forrest GumpMEMBER

    Negative Gearing and the CGT concession actually increases the cost of rentals.

    As properties become vacated the owner attempts to snag the biggest gold pocketed tenant in the pond by leaving the asking price for rent as high as possible being generally above market price. As others also come onto the market they use the existing empty above-market advertised properties as a guide and match it. Resulting in all new rentals asking above market prices.

    Landlords don’t care that they don’t have any cash flow with an empty property since they are seeking a lower tax bracket and a nice Christmas present with the 50% CGT discount sometime down the track. So the empty property with the above market asking price is being financially supported by the tax payer.

    So its total bumkin that Negative Gearing results in lower rentals. Absolute bull.

    If that were true, then Perth’s rental market average weekly $ rentals would be lower than that of the GFC since there are now double the vacancies compared to the GFC.

    But due to Negative Gearing, rents remain higher for longer.

    • Great theory – price your property out of the market so instead of losing $500 per week while vacant you lose $250 after tax, makes a lot of sense

  8. billygoatMEMBER

    @Forrest Gump.
    The results of your theory are all over the Eastern suburbs. Anecdotally I’ve seen rent ‘asking’ prices rise on one bedder Military rd Dover Heights from $290 (2007) to $590 (2015) The rise in asking price is justified by ‘renovation’ i.e. new shower stall instead of bath, coat of paint over mould, $15- $20 plastic venetians (if you’re lucky) cupboard doors(if there are any) painted white (inside cupboards in original condition – patina of 40 years worth of tenancy food debris) indicating just how far down the food chain tenants are in this country. As smarter people than me on this site have said you can’t polish a turd. Makeover all you like but the bus still stops 3 metres from bedroom window 6am to 1am daily and I imagine they have soundproofed the wall so wake to sound of neighbours wee tinkling into the toilet – the joy of renting in Sydney!