The Coalition plans to target 270,000 young renters in Australia’s 25 most marginal seats in the lead-up to the next election, believing that Labor’s plans to curb negative gearing could prove a vote winner for the federal government. Liberal Senator Dean Smith contends Labor’s plan to do away with negative gearing for established homes will reduce the supply of rental housing and push up rents. From The Australian:
“The closer we get to the election, I believe young voters across Australia will begin to focus on the implications that Labor’s negative gearing changes will mean for them, which will be a rental famine and inflated rental prices,” Senator Smith said…
“By discouraging property investors not to buy established houses, Labor’s negative gearing changes will reduce the supply of rental homes in Perth at a time of falling vacancy rates and result in an explosion in rents.”
Dean Smith’s argument is moronic.
First, negative gearing inflates prices, turning would-be owner-occupiers into renters. Reducing investor demand would boost the number of first home buyers, thereby transferring homes for rent into homes for sale. Indeed, there is a direct inverse correlation between investors and owner-occupiers. Thus, if you reduce the former, you increase the latter:
Second, and related to the above, 90% of investors purchase established homes not new homes. Therefore, they aren’t actually adding to supply, but rather inflating the value of existing homes and turning homes for sale into homes for let:
Again, unwinding negative gearing would merely turn renters into home owners, leaving the rental supply demand equation unchanged.
Third, Labor’s policy will direct negative gearing into newly constructed dwellings only, thereby boosting overall supply (other things equal) and placing downward pressure on rents. Because of this, the Real Estate Institute of Western Australia (REIWA) recently argued that labor’s policy would actually make rents more affordable.
Finally, Labor’s negative gearing policy is exactly the same 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”.
So, how can the Coalition credibly support restricting foreign buyers to new builds because it boosts rental supply, jobs and growth, but not negative gearing? Their position is contradictory.
These types of arguments have been debunked so many times, it’s hard to believe they continue to receive air time. Thankfully, most people aren’t buying the Coalition’s lies anymore and these types of attacks are falling dead flat.
