A desperate Treasurer Josh Frydenberg hit the airwaves yesterday attempting to scare voters into believing that Labor’s negative gearing policy would simultaneously smash house prices while forcing up rents.
Here’s Frydenberg on Radio 2GB:
“Labor’s policy will make sure that people who own their home will see the value of their home be less, and fall and if they rent their home, their rent will go up as a result of Labor’s policy.
“So it’s exactly the worst time to smash the housing market.
“Everybody who sells their home into the future, negatively geared or not, will be worse off because they’ll be less buying in the market.
“Because the Labor party is going to take away some of the tax incentives they currently get.”
And here’s Frydenberg on Sky News:
“If you rent your home you will pay more because you’ll have less investors who are prepared to charge lower rents in order to get subsequent capital gains”.
It’s true that Labor’s policy will hit investor demand and lower house prices, thus assisting would-be first home buyers locked out of the market. It is a ‘housing affordability’ policy, after all, which necessarily requires cheaper housing.
But for Frydenberg to claim that Labor’s policy would magically force up rents is a bald faced lie.
A quick analysis of the evidence shows 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, 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.