Desperate REIA locusts invade your mail box


By Leith van Onselen

You can’t keep a good parasite down. Yesterday, I received the attached flyer in my email inbox from the Real Estate Institute of Australia (REIA) warning of calamity if Labor’s negative gearing reforms are enacted.

Let’s take a look at their piss weak arguments.

First, the supposed effect on tenants:

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Righto, so we are supposed to believe that rents would rise by 10% under Labor’s changes, which comes from the widely debunked report from BIS Shrapnel (debunked here, here, here and here).

Why exactly would rents rise when over 90% of investors purchase existing dwellings over new construction?

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Thus, they are not adding to rental supply, but rather substituting homes for sale into homes for let.

Under Labor’s policy there would certainly 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.

It would also be good for the economy and 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”.


So using the Coalition’s own logic, wouldn’t Labor’s policy also help “to grow our economy” and “create more supply” (a win-win)?

Next, the REIA attempts to scare sellers:

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Again, where is the evidence for any of these claims other than the widely debunked BIS Shrapnel report?


Take, for example, the nonsensical claim about reducing tax revenue.

The independent Parliamentary Budget Office has costed the impact of Labor’s policy as improving the federal budget by $565 million over the forward estimates, and by $32.1 billion over the decade. Therefore, Labor’s negative gearing and CGT policy is a clear winner from a budgetary perspective.

Sure, there would be less stamp duty revenue flowing to the states, but the REIA has for years lobbied for stamp duty’s reduction or elimination. Besides, the states could make up any shortfall by swapping stamp duties for more efficient taxes.


The REIA also fails to acknowledge that the extra house price inflation caused by negative gearing means home buyers have to take-out bigger loans and pay more loan interest which, while beneficial to the banks, limits their expenditure elsewhere in the economy, in turn crimping the profits (and tax paid) by other sectors.

Next, the REIA attempts to scare landlords:

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Hang on, didn’t you just argue that rents would rise by 10%? Shouldn’t landlords rejoice at this outcome?


And seeing as you are so happy to quote BIS Shrapnel’s dodgy report for everything else, shouldn’t you also acknowledge that it predicts that house prices would keep on rising albeit at a lower rate? Peter Martin made this exact point yesterday:

The government’s economic modeller of choice on negative gearing, BIS Shrapnel, finds that after 10 years of a policy similar to Labor’s, Sydney home unit prices would be 15 per cent higher. Without Labor’s policy, they would be 22 per cent higher. The main impact of Labor’s policy would be to slow price rises…

Finally, the REIA attempts to scare buyers:

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Righto, so prices will fall, thus improving housing affordability, but this is somehow bad news for buyers? You cannot make this garbage up.

Rather than rely on the advice of real estate agents with a vested interest in lining their own pockets, how about we refer yet again to the views of 51 economists surveyed by the McKell Institute:

Between 29 February and 2 March 2016, The McKell Institute surveyed 51 of Australia’s leading and most respected economists to gauge their opinions on negative gearing policy.

Respondents were asked to nominate whether they strongly agreed, agreed, were uncertain, disagreed, strongly disagreed, or had no opinion about six statements presented in the survey.

Economists surveyed were from a range of leading Australian universities and financial institutions. The statements presented to economists surveyed reflected current debates regarding proposed negative gearing reforms.

Bernie Fraser, former Governor of the Reserve Bank of Australia, was one economist surveyed, and provided additional commentary regarding the subject matter of the survey: ” From a national interest – rather than political interest – perspective, tax measures (and policy measures generally) should be assessed in terms of their contributions to four goals, namely resource allocation, economic growth, price stability, and what is too often forgotten these days: fairness.

The current negative gearing (and related capital gains) tax arrangements score poorly on all four tests – they divert savings and resources away from potentially more productive investments into (sometimes speculative) property investments to take advantage of the tax concessions ; this does nothing to improve economic growth (or the budget bottom line ) ; they can accentuate short term fluctuations in house prices and sustain long term increases in house prices which far outstrip increases in the earnings of most Australians ; this lastmentioned consequence , plus the fact that the benefits of the concessions flow disproportionately to people on higher incomes, make the current measures manifestly unfair” –

Bernie Fraser, former Governor of The Reserve Bank of Australia. The comments of Mr. Fraser broadly reflect the sentiments of the majority of leading Australian economists surveyed.


I’ll see your REIA garbage and raise you 51 economists…

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.