Saul Eslake slams BIS Shrapnel negative gearing farce


By Leith van Onselen

BIS Shrapnel’s farcical report on negative gearing, which ridiculously argued that rents would increase by 10% if negative gearing was restricted to newly constructed dwellings, has been dismembered yet again, this time by economists Saul Eslake and Richard Holden. From The AFR:

The BIS Shrapnel report (and a recent opinion piece by its author on these pages) asserts that rents will rise significantly and property values will fall if changes to negative gearing are made. There are serious issues with the logic of these assertions. They are internally inconsistent, fly in the face of evidence, and contradict basic economic principles…

The BIS report… claim that when investors subsequently sell the property it would not be new construction, hence not available for negative gearing, and the allegedly lower resale price would make it less attractive in the first place.

This completely ignores the fact that 76 per cent of purchasers are owner-occupiers, who are currently not eligible for negative gearing… Moreover… foreign investors put between three and four times as much into the purchase or construction of new dwellings as Australian investors, and nearly as much as owner-occupiers do. And, of course, foreign investors can’t access negative gearing…

In the last five years every State and Territory government has shifted new home buyer grants away from existing construction to new construction only. These are much like the incentives for new construction proposed by Labor… Has there been a spike in rents as a result? Has new construction plummeted? No, and no.

The scare campaign against changes to negative gearing ignores key facts about the housing market, ignores the compelling available evidence, and is logically flawed.

I will add, yet again, that Labor’s negative gearing policy is also entirely consistent with the Coalition’s policy on foreign investment, which restricts foreigners to purchasing newly constructed dwellings. Here’s the chair of the foreign investment inquiry, Liberal MP Kelly O’Dwyer, explaining the benefits of this ‘new homes only’ policy:

“Currently the framework seeks to channel foreign investment in residential real estate into new dwellings in order to increase the housing stock for Australians to build, buy or rent. Foreign investment is encouraged in new dwellings whether they be apartments, units or homes because in addition to creating more supply, it also creates more jobs for the building and construction sector – all of which helps to grow our economy”.


It’s fair to say that the BIS Shrapnel negative gearing report, which was embraced by the Coalition, has been well and truly discredited by MB, the Grattan Institute, The Australia Institute, Media Watch, and now messrs Eslake and Holden.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.