Josh Frydenberg wallows in more negative gearing lies

By Leith van Onselen

A desperate Treasurer Josh Frydenberg again hit the airwaves yesterday attempting to scare voters into believing that Labor’s negative gearing policy would simultaneously smash house prices, force up rents, and shut-out first home buyers:

“Anyone that owns their own home under Labor’s policy, their home will be worse less. Anyone that rents their home under Labor’s policy, they’ll pay more”…

“Labor’s policy will be a terrible outcome for people with debts in their own home, people who are even looking to get into the housing market”…

“You don’t want everyone’s value of their home to go down and that’s effectively what Labor’s gonna do”…

Later in the interview, Frydenberg went on to hypocritically claim the Coalition has sensibly “managed down” Australia’s house prices, but that lowering house prices under Labor’s negative gearing policy would be a “disastrous outcome”.

Seriously, this is embarrassing stuff. When the housing market was roaring and Sydney and Melbourne house prices were growing out of control, the Coalition furiously opposed Labor’s “reckless” negative gearing policy because it would “smash” house prices. Yet now we are supposed to believe that the Coalition’s “smashing” of investor demand and prices via macro-prudential is sensible and desirable? Basically, house price falls under the Coalition are good, but under Labor are bad, according to Frydenberg?

However, the contradictions don’t end there. Frydenberg also claims that lower house prices would be a “terrible outcome” for “people who are even looking to get into the housing market”. As if paying less for something somehow makes it less affordable!

But wait, there’s more. Rents would also magically rise, according to Frydenberg. Never mind the fact that 90% of investors buy existing dwellings rather than new construction. Therefore, they do not materially add to supply:

So, at worst Labor’s policy would turn houses to let into houses for sale, in the process turning renters into home owners and leaving the supply-demand equation for rental properties unchanged.

However, as we all know, Labor’s policy of restricting negative gearing to new construction would very likely boost rental supply and place downward pressure on rents, as suggested by Deutsche Bank:

“Our sense is that the relative attractiveness of new dwelling investment compared to investment in established dwellings should be a positive, at least at the margin, for new dwelling construction”.

As well as by developer Stockland:

The Labor Party’s plan to limit negative gearing tax breaks to new housing would put a rocket under the business of residential developers because demand from investors would surge, Stockland chief executive Mark Steinert says…

“Our business will rip,” he said at the Property Council of Australia’s annual congress in Darwin.

Let’s also remember that Labor’s policy on negative gearing is practically identical to the Coalition’s policy restricting foreign investment to newly constructed dwellings, which is aimed at boosting dwelling supply, economic activity and jobs. Again, 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”.

Substitute “foreign investment” for “negative gearing” and the argument is exactly the same.

Josh Frydenberg needs to stop lying and develop genuine arguments if he hopes to derail Labor’s policy.

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Unconventional Economist


  1. Sometimes incredible to reflect on the arguments that fill the public space in Australia. It’s almost impossible to think of who would be upset by this negative gearing change as all the grandfathered will feel smug and the rest of us will rejoice it’s ended. So a small percentage of newer investors might grumble. Or invest in more productive sectors.

    • proofreadersMEMBER

      Very much in common with his boss and fellow Steven Bradbury in life? Truth contortionists extraordinaire?

      • truthisfashionable

        Hey, Steven Bradbury was an accomplished and competitive athlete who happened to be in the right place at the right time.

        These people are living examples of the Peter Principle in action.

    • @Ben — Josh Frydenberg needs to stop lying and develop genuine arguments if he hopes to derail Labor’s policy.
      Don’t forget he’s a Jew – They believe it’s OK to Lie to non Jews — strange but true. He’s an A$$ !

  2. Whether or not it is a lie doesn’t quite matter IMO. For people who bought in the last few years hearing a party say this whether true or not will win some voters who are fearful of the changes (in the 30-to-50 yr age bracket IMO); who may have stumped min 20% of their hard earned savings (most don’t pay LMI for an investment) into an investment property in the Sydney/Melbourne markets often after seeking advice (i.e. the financial advice industry isn’t great either). It’s pretty much too late to sell unless you have a really good property that needs no repairs (even minor ones) with listing times rising and hardly any buyers anywhere. Most people using negative gearing being middle class earners according to a recent post here. Grandfathering doesn’t really help people who want to get out of their position. Anyone who has bought in the last 5 years or so stands to lose a lot of equity. Also I do think construction will fall – after all I don’t think the “new building” clause will be enacted on as it is a bad investment in low capital growth areas; and it probably is even riskier for a bank to lend to these developments especially in a falling price market. Stockland would say that btw – they are a listed stock and they don’t want to hurt confidence. I wouldn’t want to be a property developer for the next few years. So whether it is a “lie” or not doesn’t really matter; all that matters is “are you on my side or not?”. In all honesty I think the policy isn’t a net vote winner – NG/CGT removal proponents tend to put Labor over Liberals typically anyway I would image on the whole and I’m sure they’ve done their “focus groups” on it hence the campaign.

    • “…bad investment in low capital growth areas…”
      Low capital growth will be the (best case) exception when this whole things starts to accelerate to the downside.

      • Exactly. And assuming your a buyer the last place you want to buy is where they are building more and more supply and where there are other investors that may panic at the next downturn. After all Australia is composed of many “mini-markets” – somewhat correlated but not entirely. While I’m happy for “institutional investors” to lose money since they should be better informed giving that tax payer benefit to Mum and Dad’s encouraging them to be pro-cyclical seems like a reciepe for disaster.

  3. “..Labor’s policy of restricting negative gearing to new construction ..”

    Why keep lying about this yourself when you know it isn’t true?

    Labor’s policy will allow the wealthy (with sufficient investment income) to continue negatively gearing new investment in established homes in unlimited quantity.

    • I have some doubts that this is going to be an issue politically or in practice.

      The wealthy will only set off losses against other investment income if it is profitable to do as no one loses money short term if the long term capital gain play is not profitable.

      With the small time property speculator abandoning the existing property market with the loss of negative gearing on new purchases.


      The capital gains discount reduced to 25%.

      Existing property investment (other than owner occupying) is likely to be unappealing to the wealthy investor as well.

      At least until prices fall and rents rise enough to make it attractive on the basis of rental income.

      If there is a real risk of existing property failing to produce strong capital gains moving forward why would a wealthy investor see any advantage in losing money in the short term even if they can set it off against other investment income.

      Quarantining all losses to a specific asset would solve the problem you raise but it may be a sledgehammer for a non-existent nut.

      If the nut proves a problem they can always introduce the sledgehammer later.

      • The change in CGT discount applies to all assets. Which assets are the wealthy going to move to and why?

        If everything you say here is true, should that really absolve UE from lying in his article?

        Not to mention he’s pulled out the famous existing vs construction (finance commitments) chart again which says nothing about the contribution investors make to new supply, the measure of which would need to show the % of new homes constructed or purchased by investors vs owner occupiers.

  4. Yeah but this strategy of lying will win the Libs the election.
    Tell a Strayan that the opposing party will make their house price go down by even a trivial amount, even if it is a blatant lie…. you will instantly win their vote.
    Tell me I’m wrong … you know it’s true.

    • You’re right, Kliff. No property owner wants the price of their home or investment to go down, and for good measure, no renter wants their rent to go up. The facts are immaterial – it’s the scare campaign that will work.

      It’s just that LNP are getting their facts a bit twisted – house price falls are calamitous, and yet somehow bad for potential buyers at the same time, and all along the extra bit they throw in is about nurses, police and teachers negatively gearing, and the evil of ruining their wealth plans for retirement.

      I seriously have doubts that ALP, if elected,will actually implement the changes to negative gearing. There will be a huge uproar, so loud that they might just back down.