Former National Party senate representative, Bill O’Chee, is the latest Coalition hack to launch a scare campaign against Labor’s planned changes to negative gearing.
Let’s look at O’Chee’s flimsy arguments via The SMH:
Contrary to popular belief, the biggest beneficiaries of the tax deduction on negative gearing are tenants.
If you tax interest paid on loans for rental properties, landlords will have to charge more rent to be able to pay that tax. Allowing a deduction for interest keeps rents low.
So, while landlords benefit in the long term, it is tenants who benefit immediately, and the most.
Sadly, Labor is playing envy politics. It is a sad and dismal look, and also ill-informed.
Just this week, First National Real Estate sent out an email to everyone on its database saying Labor’s changes would cause property prices to fall, but not by enough to make it easier to save a deposit. They also pointed out that it would “decrease the value of 18 million Australians’ super funds, while rents would rise by 10 per cent”.
For families with children, the rent is likely to come at the expense of children’s clothes, or food on the table, or the annual family holiday.
It’s a sad state of affairs when commentators take their economic cues from real estate agents with a vested interest in maintaining negative gearing in a bid to line their own pockets. But that, I’m afraid, seems to be the Coalition’s standard modus operandi these days.
O’Chee’s claim that “if you tax interest paid on loans for rental properties, landlords will have to charge more rent to be able to pay that tax” is particularly ridiculous.
How many landlords do you think go to their real estate agent and ask how much they would get in rent only to then mark it down due to the ability to negatively gear? Of course they don’t do that. They charge as much as they can based on supply and demand, as well as renters’ overall ability to pay.
I’ve debunked this rental myth so many times that I have lost count. But here I go again (yes it is getting very tedious for me also).
Why exactly would rents rise, Bill, when over 90% of investors purchase existing dwellings over new construction?
Thus, negative gearers are not adding to rental supply, but rather substituting homes for sale into homes for let.
Yes, under Labor’s policy there would be less “investment” (read transfer of ownership) in existing dwellings, but those homes would not magically disappear from the supply-demand equation. Rather, those homes would be purchased by an owner-occupier, thus reducing demand for rental properties by the same proportion as the fall in rental supply.
More importantly, because Labor’s policy would channel negative gearing towards new builds, dwelling construction would increase, as will the supply of rental accommodation. And this extra supply would lower rents, other things equal.
Let’s not forget that Labor’s negative gearing policy mirrors the Coalition’s ‘new homes only’ policy on foreign investment, which Liberal MP Kelly O’Dwyer championed as follows:
“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”.
Why exactly would Labor’s policy push-up rents whereas the Coalition’s foreign investment policy would “increase the housing stock for Australians to build, buy or rent”, “creating more supply”, not to mention creating “more jobs for the building and construction sector – all of which helps to grow our economy”?
O’Chee’s whole argument is nonsensical and a sad indictment of his party, which used to stand for something but has sold-out to a conga-line of rent-seekers and lobbyists.
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.
