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:

ScreenHunter_13017 May. 18 10.58

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:

ScreenHunter_13019 May. 18 11.10

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.

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

Comments

  1. LabrynthMEMBER

    Refinancing to buy a second investment property (existing) = capital gains event.

    1) Simple and easy
    2) Mums and Dads can buy that investment property and be popular at bbq
    3) Removes the insatiable appetite to leverage to infinity and buy multiple properties
    4) Removes investors from the market
    5) No Political backlash

      • I wouldn’t call it a capital event.

        I would call it activation of the crown to resolve a land deed title.

        Vendor bids should attract a stamp duty.

    • Nobody can say for sure what will happen if Labour’s NG policy comes into effect, but I do think that the overall market would destabilize and probably new dwelling construction would stop suddenly and abruptedly. Then a repricing of rents and property would take place (for better or for worse) for a few years to come until everybody knows what impact it has on their bottom line. Without a question, the economy would drop like a rock as a result. Prices are high because interest rates are low – pretty simple!

  2. The Patrician

    Wall to wall screaming real estate agents….. and not a renter or a teacher or a nurse or a cleaner in sight.

    • You beat me to it – only vested complaints – our recent polling (last couple of week and for developer client, so detailed results private) has found that most home owners (as owner residents) are not interested in NG, the vast majority think that investment property has too many tax perks and are really concerned about their kids and grandkids ability to secure a home – the survey covered close to 500 residents across SEQ, of which approximately half of those surveyed own an investment property and most of those that do, NG!

      • @MM strengthened my faith that most Aussies are good people. It is their political class, of all colours (exception of Labor on this issue) that will not permit healthy and needed reform.

        Seems Bernard Salt has had his way in banding the RE Industry together in a heroic effort to hold the nation back. Where is that video of him talking on this issue (forming an RE propaganda committee) that you posted a few months back MB? Might be worth a re-post?

        I think this is it:

        https://www.youtube.com/watch?v=76-weCISRFQ

        Someone should be sure to copy it before they take it down.

  3. I now have a new term for the skidmarks in my undies: I shall now refer to them as my “Jock Kreitals”

    • I have to ask. Do you do a lot of referring to them? Personally, it’s not something I’d go on about too much. 🙂

  4. I got an email the other day from realestateVIEW.com.au. The hadn’t emailed me since 2013 (!)

    It’s titled “Negative Gearing and how it affects you…” and drives to a blog post that quotes the dodgy REIQ survey’s insight that “79 per cent of respondents will get out of property” if negative gearing is changed and that it “will have a crippling effect on house values and on the rental market, where the private rental market plays such a critical role in keeping rents affordable.”

    • Which should be beneficial for the agents if owners are looking to see (assuming that they buyers sense the “opportunity”).

    • It’s like when my landlord told me to vote for the no land tax policy, he said we the tenant’s should vote for it because they are trying to keep the rents low. I’m glad I wasn’t there when he said it (said it to my partner) because I would have laughed really hard.

  5. Lol. Makes me laugh.

    Off topic – anyone seen the one page “welcome” in the Australian Newspaper?

  6. Perhaps it would be more logical and accurate to correlate the limitation of NG to the numbers of prestige cars bought by RE agents? I reckon porker dealerships will be in the front line..

  7. http://www.news.com.au/finance/real-estate/buying/nothing-worth-doing-comes-easy-how-23yearold-brisbane-man-saved-for-his-first-home/news-story/135e15ec12ffb385da9324bd0f398ec9

    LIKE many young Aussies, housing is a major issue for Brisbane IT professional Nick Burge, only the 24-year-old is frustrated for different reasons than most.

    He’s frustrated by gen Y constantly complaining about how they can’t crack the property market, and thinking politicians should be making it easier for them to buy their first home.

    This sort of bulls**t just gives me the s**ts.

    • I’m surprised at people who speak up like this. What gain is there to wade into the fight? At best he gets some negative comments in social media and the matter is forgotten. At worst he triggers a serious backlash against himself (like Duncan) which could result in his employer dropping him, or clients not wanting to work with him. I’m not against speaking up, but it should be for a greater good. Why spend your 15 minutes on calling your peers lazy and entitled?

      Grats to him for getting to live rent/board free, no electricity, hecs or water bills, in a city where $300k still gets you a decent apartment. Not really newsworthy. But I guess carrying water for others is fun?

      • You have to laugh. He’s against handouts (but he’s applying for the $15,000 “Great Start Grant”) and he’s against parents helping their kids (but he lived at home rent-free with his parents and they paid for his education).

  8. Negative gearing: The ghost haunting Wayne Swan
    http://www.smh.com.au/comment/the-hermit/negative-gearing-the-ghost-haunting-wayne-swan-20160517-goxclm.html

    [Wayne Swan] knows that the people it will hurt most are the renters.

    37,448 people in his electorate living in private rental accommodation. These are exactly the sort of people at risk if negative gearing is removed.

    Contrary to popular belief, the biggest beneficiaries of the tax deduction on negative gearing are tenants.

    A 10 per cent increase in rent for these people would mean an extra $30 in after-tax money would be needed to stay in rented accommodation.

    Because we are talking after-tax money, that probably requires a 13 per cent pay increase to keep up, and we all know that is not going to happen.

    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.

  9. Phil the engineer

    Why wait for negative gearing to be abolished to increase rents? Why not do it now? Are landlords stupid? They should be cashing in!

    • That has always been my thought. If I owned a rental property I would charge as much as I could get away with. I wouldn’t reduce the rent just because it permitted me to lose money. Bizarre logic.

      • This is no shit. I have known people who believe that you make money as a landlord by maximising your losses so that you get a bigger tax deduction. The theory is that through some inexplicable “negative gearing”-fu, your tax return actually becomes bigger than the amount you lost, and at the end of the day you come out with net positive cash flow as a result of all these shenanigans. You actually make money by losing money first, and the more you lose the better because that will increase your profits as a result of negative gearing…money comes from nowhere! Magic! That is how it was explained to me. That is the level of financial sophistication of at least some (and I suspect many, if not most) RE speculators in this country.

  10. Yeah, increase rents? How about going into manufacturing FOR SALE and TO LET signs?
    Don’t you think if landlords could increase rents without losing tenants they would have done it by now?

  11. bzunicaMEMBER

    Here is a conversation that NEVER happened:
    Agent: “You can probably get $550 a week for your property”
    Landlord: “But you know I am negatively gearing the property”
    Agent: “Well then, you should probably let it go for $500”
    Landlord: “That sounds right by me”

  12. Forrest GumpMEMBER

    Next you will be getting flyers from used car salesman and hookers telling you their products and services will increase if negative gearing rules are changed.

    LNP have rallied their elite support donors to come to the rescue.

    If you receive this junk mail in your letter box, ….wrap a brick in it and “Return to Sender”. If they get enough of this shit back it may just send a message

  13. What a load of rubbish. The first sentence in each of these is utter crap. I wouldn’t be tempted to dismiss anything just because I was a Landlord or a Potential Buyer. Their arguments are so bad they belong in a Liberal party brochure, oh hang on they are a liberal party brochure. I’d kill to read the realestate agent one.

    Because you are a realestate agent it may be tempting to dismiss the latest political battle over whether negative gearing should be abolished.

    You may even see it as a good thing if prices go down, but equity in society is overrated, have you considered.

    1. Commissions are based on house prices.
    2. Agencies derive commissions from Mortgage broking, often tied to the amount of debt you can saddle a client with
    3. The renter class we have been building up for years may actually be able to buy a house now eroding your revenue base.
    4. You may even have to sell your Audi.
    5. oh and make sure you tell all your clients government revenue will go down, unemployment will rise and super funds will be demolished (This should scare public servants, the young and the old). If asked for data refer only to what happened in Sydney last time and mention BIS.

    Together we will be victorious in seeking our share of rents!

  14. mine-otour in a china shop

    The way these lobby groups treat people with so much contempt is unbelievable.

    The “Your Voice Counts” slogan might need to drop the letter O from the latest 3 word slogan excuse for proper policymaking “Your Voice – C&nts”

  15. No wonder its so hard to find a rental, we kept offering market rates, rather than 10% less!

  16. St JacquesMEMBER

    Flyer from RE agents telling The Honest To Dog Truth:
    “Landlords donate their NG and other tax breaks to tenants through lower rents. Really. Truly.”

    Fair dinkum.

  17. While all of the above might be true – its irrelevant. We would not even be having this discussion other than for the real causal factors. Bit of history people – we have had negative gearing for how long? 100 years, that is how long and all of a sudden its become a “cause célèbre”.

    The issues are:

    1. Too many people – too much migration into Sydney and Melbourne, Brisbane is half the price of Sydney – wonder why…?
    2. Too expensive to develop – read Local and State Governments gouging every last cent
    3. Greedy stupid lazy banks lending at stupid LVR’s to people who should not have loans. The bank seemingly have an unbelievable lack of self interest – boy are they going to “get it in the neck”. They have created a ‘crown of thorns’ for themselves and us.

    So this is an issue self inflicted – what we are doing and in the process of is ‘eating ourselves’. We start with anyone who seems to be getting an advantage that I don’t have – the rich, property owners, big business…. and then it will move down the income levels.

    WE ARE ALL STUFFED – except the political classes and the dumb media are too scared or stupid to admit it.

    You need to stop flapping your wings and gums and start ’rounding up the wagons’ cause the cavalry is not coming, we are well into the decline of the country. Too fat and lazy… we are…

  18. what is annoying about REIA is that they can spew out all of this propaganda to the public but they leave no avenue for a rebuttal. Anyone know of a public arena where these people can be made to account for their statements. No facebook page…nothing

  19. There are penalties for false advertising. There are penalties for fraud. Shame there’s no penalty for being full of shit in general. REIA would pay.