UDIA swarms with negative gearing locusts

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By Leith van Onselen

The Urban Development Institute of Australia (UDIA) is the latest property rent-seeker to join the locust’s scare campaign against Labor’s reforms to negative gearing, challenging Labor to provide modelling supporting the reforms and arguing that rents would increase. From The AFR:

Michael Corcoran, the developer lobby group’s national president, said a similar policy decision under former Labor prime minister Paul Keating to remove negative gearing was reversed after rents rose and the policy began hurting investment and the economy.

“You can only assume that evidence to support this high-risk policy change does not exist,” Mr Corcoran said on Monday.

With two weeks to go until the closely fought July 2 federal election, the UDIA is adding its voice to a campaign that has already galvanised the Property Council of Australia at the political level and real estate agents at grassroots levels.

Seriously. How can the property lobby continue to claim that rents rose after Labor abolished negative gearing between June 1985 and September 1987, when the evidence clearly disproves this?

If you want proof, check out the below charts tracking real (inflation-adjusted) rents, with the period where negative gearing was “abolished” shown in red.

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Rental growth remained either flat or fell nationally:

ScreenHunter_3791 Aug. 15 11.02

In Melbourne:

ScreenHunter_3799 Aug. 15 11.12

In Brisbane:

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ScreenHunter_3800 Aug. 15 11.12

In Adelaide:

ScreenHunter_3801 Aug. 15 11.12

In Hobart:

ScreenHunter_3803 Aug. 15 11.15

In Canberra:

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ScreenHunter_3804 Aug. 15 11.15

And in Darwin:

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With only Sydney and Perth registering increases, due to very low vacancy rates at the time:

ScreenHunter_3798 Aug. 15 11.12
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ScreenHunter_3802 Aug. 15 11.14

Surely, if negative gearing had any impact on the cost of renting, its abolition in 1985 would have caused rents nationally to explode? Yet, the evidence shows absolutely no impact.

ABC Fact Check has also previously debunked the property lobby’s claim around rents.

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Second, why would Labor’s policy “hurt investment and the economy”, given that it will channel negative gearing towards new builds, thus boosting construction activity and jobs (in addition to rental availability)?

Just look at the Coalition’s own policy towards foreign investment, which restricts foreign buyers to newly constructed dwellings and is virtually identical to Labor’s negative gearing policy. This ‘new homes only’ policy was deemed by the chair of the foreign investment inquiry, Liberal MP Kelly O’Dwyer, to be good for the economy, housing supply and renters:

“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”.

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Swap the words “foreign investment” for “negative gearing” and the arguments are identical.

Let’s also not forget that the briefing from the Australian Treasury, received by The ABC under Freedom of Information, claimed that Labor’s reforms to negative gearing and the CGT discount could provide big benefits to the Budget:

The analysis predicted the combined effect of Labor’s negative gearing and CGT policies could add up to $6 billion a year to the budget bottom line “depending on the increase in new housing construction flowing from the new housing exemption”.

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The property lobby must face facts. All the logic and evidence points if favour of Labor’s property tax reforms, which would other things equal: 1) save the Budget money; 2) boost construction activity and dwelling supply; and 3) increase rental availability and lower rents.

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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.