Terry McCrann defenstrates self over negative gearing

By Leith van Onselen

Just when I thought he’d hit peak stupid in the negative gearing debate, Terry McCrann has launched another embarrassing attack on Labor’s policy. From The Herald-Sun:

Treasurer Josh Frydenberg has nailed the double-sided disaster that the Labor duo Bill Shorten and Chris Bowen’s attack on negative gearing would be for both owner-occupiers and renters…

From Frydenberg it’s: For anyone who owns a home Labor will make it worth less. For anyone who rents their home, Labor will make them pay more.

As that covers pretty much 100 per cent of the population — and 100 per cent of voters — it’s a powerful political message.

He — and prime minister Scott Morrison and every member of the coalition — need to keep repeating it five times a day, every day, and twice as many times on Sundays, Donald “build the wall” Trump style.

Apart from being simple and easy to understand, the message has the virtue of being true…

It’s the most basic reality: if you reduce the number of buyers you reduce the potential selling price. For anyone who owns a home (or indeed buys one, whether as an owner or investor) Labor will make it worth less.

…over time the stock of rental properties will fall as there will be fewer investors; and, very importantly, people will “invest” more and more in the one totally tax-free “family home”. If you rent your home Labor will make you pay more.

We all get that reducing investor demand will lower house prices (other things equal). Nobody disputes this. It is a housing affordability policy, after all, which necessarily requires lower prices and/or rents.

But McCrann’s logic for why rents will magically rise is flat out idiocy. The fact of the matter is that 90% of investors buy existing dwellings rather than new construction. Therefore, they do not materially add to supply, but rather are transferring homes for sale into homes for let:

So, at worst Labor’s policy would reverse this process and turn houses to let into houses for sale, 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 also 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. 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.

Terry McCrann needs to stop recycling the same tired lies and produce some genuine arguments if he hopes to derail Labor’s policy. Because, every time he writes such a piece, his credibility sinks even lower.

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Leith van Onselen
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Comments

  1. HadronCollisionMEMBER

    not bagging you, merely speaking to readership / exposure for his disinformation

    HSun/Mcrann readership: N =
    MB: N =

    All of which demonstrates how (sadly) readily his diatribe could become accepted wisdom by the Herald Sun-tariat

    Sadface

  2. “The fact of the matter is that 90% of investors buy existing dwellings rather than new construction. Therefore, they do not materially add to supply, but rather are transferring homes for sale into homes for let:”

    My observation is that they materially reduce supply, as it is common for the house to remain vacant for many months after it is sold (or inherited) before the new owner leases it out.

    • Use it or lose control of it? Vacant dwelling tax, transfer of management to state trustee for utilisation as public housing?
      Now that would solve a supply problem and rattle a few (gilded) cages!

      • Owner of house next door’s doing that reno himself after his parents who lived there died – 2 years plus and counting. Habitable house, 2 bedroom, less than 10km to Melb CBD, no one is using it. And it’s just one of four or five among the 20 odd in my section of my street (i.e. bounded by two nearest cross streets).

        Perfectly rational if you think your house’s value will climb in the mean time, maybe not if the value’s going the other way.

      • From time to time I like to keep an eye on real estate listings – in the vain hope that prices will come back to earth. Every now and then I come across some shockers that have to be seen to be believed.
        For instance, take this place in East Geelong. Currently quoting a price range of $599,500 to $659,000. Except it has no floor and the plaster has been stripped out of it!
        This has all the hallmarks of a vendor in distress. Selling a half-done renno is never a good move.
        Consider if you will for a moment that in order to get a mortgage on a house you need the bank valuer to favorably assess it. Somehow I can’t imagine this would have a certificate of occupancy.Ya know, coz you can’t live in it without floors. Might make insurance a bit hard to obtain too.
        Here’s the current listing
        https://www.domain.com.au/274-mckillop-street-east-geelong-…
        I decided to take a trip back in time and see when this place last sold. It wasn’t long ago. Sold last year on 17 Jun 2017 for $530,000 https://www.realestate.com.au/…/property-house-vic-east+gee…
        So to recap, they bought last year for $530k, tore up the floors, wiring, plaster and plumbing. Re-stumped it and probably ran out of cash. Now they want $130k premium? Tell ’em they’re dreamin’

      • Locus of ControlMEMBER

        I checked the link to that Geelong place and feel as the house must – gutted. The website features the ‘before reno’ images of the house – although dated it was supremely neat, tidy, serviceable and apparently well-maintained. What a mess it is now – not liveable, garden untidy, lawn unmown. It’s laughable they want a $130k premium to what they paid. The vendor has added no value. The vendor has devalued the place. The vendor should be selling for $400k to account for the damage and the money that will need to be spent by the buyer to get the place habitable again.

      • It could be mental illness. I know someone who has bought three houses over the last twenty years and the places are under constant “renovation” and were constantly refinanced in order to generate some ponzi finance to make the payments. That story is not going to end well.

      • ”I checked the link to that Geelong place and feel as the house must – gutted. The website features the ‘before reno’ images of the house – although dated it was supremely neat, tidy, serviceable and apparently well-maintained. What a mess it is now – not liveable, garden untidy, lawn unmown. It’s laughable they want a $130k premium to what they paid. The vendor has added no value. The vendor has devalued the place. The vendor should be selling for $400k to account for the damage and the money that will need to be spent by the buyer to get the place habitable again.”

        No house in Geelong is WORTH $400k these houses were selling for $50k pre the big inflation.

  3. “and, very importantly, people will “invest” more and more in the one totally tax-free “family home” ”

    This point is correct though. Currently, the property investment “industry” is a net tax payer because of capital gains on sales. And that’s before you include state land taxes which are only payable by renters.

  4. Will it add to urban sprawl and shit generic housing built to satisfy investment accountants, not sensible urban design standards? Piecemeal, stupid debate highlighting how federal, state and local gov needs to be reformed. Taxation law will never produce sensible housing outcomes.

  5. Comparing investor finance commitment of construction vs existing doesn’t tell us anything about investor’s contribution to new supply (as a share overall). What % of construction or new homes do investors buy compared with owner occupiers?

    • Freestanding homes, especially those suitable for a family of 3 or more – very very little, probably too small to measure. I’ve lived in around 10 different rental homes, never encountered one built by the landlord, don’t think I’ve even inspected one.

      Unliveable dogboxes – more than half.

      • In my experience they are run down dated dumps that have only had the bare minimum money thrown at them over the years. I currently live in 1.

  6. He doesn’t mention how many people WANT house prices to go down. Also if house prices go down and rents go up the yield is increased.

  7. Never understood the anglo-saxon culture of kicking their kids out at 18. The huge houses many boomers and older generations live in ought to house a number of their offspring. Housing shortage quickly solved. So too is caring for aged parents and non school age children. Works well in many other cultures but then they dont have a banking cartel to feed….

    • Crikey. All I wanted to do when I lived with my folks was leave. Now I’ve got kids all I want is them to grow up and leave.

      • LOL, we are older parents with one kid and we dont want our guy to leave ever. Admittedly, if he turns into a bum, I may rethink my approach.

    • “Never understood the anglo-saxon culture of kicking their kids out at 18.”

      It’s only because you can’t legally kick them out earlier.

    • Had an Italian friend who was stuck living at home in Rome till he was 30 or so, then he moved to London, said it was impossible to move out in Rome with an average job (in a shop) and would have been in parents home for ever. (he had an engineering degree also but no contacts, no proper job till he moved to the UK) and this was back in the 80;s when things were possible.. I see Aus becoming like much of old Europe with families owning property or not and almost no social mobility.

      • Same in Greece, japan and Croatia. Social cohesion by far better though and the family unit supports itself rather than rely on the state for everything. From my observations, their approach better than ours.

  8. DefinitelyNotTheHorribleScottMorrisonPM

    Terry McCrann is right. Abolishing negative gearing will make rental properties disappear. It’s exactly like the time David Copperfield did it to the Statue of Liberty. Or like Hillary Clinton’s e-mails.

  9. proofreadersMEMBER

    “He — and prime minister Scott Morrison and every member of the coalition — need to keep repeating it five times a day, every day, and twice as many times on Sundays …”
    For those living a lie, McCrann’s advice above is sound in case they should fall in to the trap of speaking the truth?