REIWA: Labor’s negative gearing policy will lower rents

By Leith van Onselen

While Treasurer Josh Frydenberg desperately tries to scare voters into believing that Labor’s negative gearing policy would simultaneously smash house prices and force up rents, the Real Estate Institute of Western Australia (REIWA) has admitted that Labor’s policy would actually make rents more affordable:

REIWA analysis shows the upward trajectory of the Perth rental market should continue through 2019, with stable population growth and slowing new-building construction levels the key drivers for this improvement.

Mr Collins said the Perth rental market had lead the way in 2018, with stable median rents, healthy leasing activity levels, declining listings and a plummeting vacancy rate.

“With population growth in WA expected to remain stable and new dwelling commencements slowing, available rental stock should continue to decline. This should see competition amongst tenants increase, putting further downward pressure on the vacancy rate, which recently dropped below four per cent for the first time in four years,” Mr Collins said…

“We’re at 19 months and counting of stable median rent prices in Perth. If listings continue to decline and leasing volumes remain healthy, we should see the overall median rent price increase in 2019 for the first time since September 2014,” Mr Collins said.

While REIWA’s 2019 outlook for the Perth rental market is positive, any changes to negative gearing could pose a risk for both the rental sector and wider property market.

“In the short term, the improvements we’ve observed in the rental market could see investors returning to the market, however if changes to negative gearing are legislated, this will likely dampen investor activity and have a detrimental effect on the wider WA property market just as it is starting to find its feet,” Mr Collins said.

“As the next Federal Election nears, REIWA will continue its efforts to ensure politicians do not meddle with negative gearing to ensure a healthy and sustainable rental market into the future.”

This, of course, is the stated intent of Labor’s policy, which will permit negative gearing for newly constructed dwellings, thereby lifting rental supply.

It’s also exactly the same approach as the Coalition’s policy restricting foreign investment to newly constructed dwellings, which is aimed at boosting dwelling supply, economic activity and jobs, as explained by the chair of the foreign investment inquiry, Liberal MP Kelly O’Dwyer:

“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”.

Stop lying, Josh Frydenberg.

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Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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  1. So what this article is saying is that if we favour “new” properties over old properties w.r.t tax concessions we will artificially increase the housing stock and potentially lower rents. That isn’t rocket science; a targeted subsidy will do that. However I think this is worse than the current NG/CGT system in that it is much more pro-cyclical with the potential to cause even bigger market crashes. Would rather they get rid of negative gearing/cgt all together to be frank – at least then it is consistent and we don’t stoke an even bigger over-building construction bubble like Ireland. I don’t think “a crash” that is disorderly will be overall a good thing for Australia.

    • “Would rather they get rid of negative gearing/cgt all together to be frank”.

      Me too. But I’d take a good but imperfect NG/CGT policy over no policy. It would be a much harder sell politically without the new builds clause.

      • Maybe that’s where you and I disagree – I think “no policy” might be the better of two evils. At least with the current inconsistency we aren’t going into construction bubbles or at least not as bad; anecdotally investors are very much increasing supply in my area of Sydney. All countries that use construction to prop up their economy have busted (Ireland as an example again) with the fallout being picked up by the taxpayer potentially for many decades. That may suit the ALP and the construction groups they are associated with in the short term but I don’t think its good long term. Wealthy people who mainly derive their income from capital won’t be affected by the negative gearing changes anyway since they will still be able to negative gear against other asset income – it just favors capital income over labor income even more. On the affordability side lower migration is a better policy in my view and has the benefit on not trashing the environment to boot unlike encouraging more construction on limited city space.

  2. If negative gearing is only for new properties, then investors have to factor in that when they sell, there will be less incentive to buy second-hand properties. Hopefully, this will cause prices to fall somewhat. And as I often say, if prices do fall enough to be in sync with rental returns, then the need for negative gearing diminishes.

    Having said that, there won’t be a crash as there is too much pent-up demand for homes. People have to live somewhere.

      • Maybe,and then that will cause prices to fall more, even diminishing more the need for negative gearing. The whole reason neg gearing has become such an incentive is because prices are way of out whack with rents.

  3. Forrest GumpMEMBER

    I think the reason why REIWA is stating that NG reform will purportedly lower rents is to attempt scare investors that they will receive lower yields.

    Frydenliar’s tactic is to scare renters that rents will (conversely) rise.

    Objective: Attempt to scare the shit out of everyone (investors and renters) that negative gearing reform will somehow impact both teams on opposing sides of the fence.

  4. Cannot talk with forked tongue. Both scenarios (for renters and property owners) cannot be correct the same time!.

  5. So…

    Ending NG will:

    Raise house prices, Lower house prices, Raise rents, & Lower rents.

    Does that about sum up the LNP position?

  6. How does it work for knock down rebuilds? If you want to get a higher price for your property can you sell a rebuild to an investor as a new home?