Captured Coalition unleashes property locust storm

By Leith van Onselen

In the ultimate sign of desperation, the Morrison Government has rolled-out several real estate industry lobbyists to campaign against Labor’s negative gearing and capital gains tax (CGT)reforms. From The AFR:

“When you converge the royal commission and APRA regulation with a big fiscal policy change you are asking for trouble,” Mark Bouris said…

The biggest lobby group in real estate, the Property Council of Australia, said the tax would curtail property as an investment option because new stock was only a small proportion of overall housing that investors can buy…

One of the top house price forecasters SQM’s Louis Christopher told the roundtable that if Labor’s negative gearing changes were implemented yields on investment properties would have to rise and and that would mean rents would have to increase…

The extraordinary gathering of interests now openly in cahoots with the Government against the public interest included VGI Partners Global Investments Noel Whittaker, RiskWise Property Research chief executive Doron Peleg, Property Investment Professionals of Australia chairman Peter Koulizos and Real Estate Institute of Australia acting chief Jock Kreitals.

Of course Labor’s policy would “curtail property as an investment option”. That’s the entire point: to stop property investors from crowding-out first home buyers:

As shown above, when investor demand falls, first home buyer demand rises. This is a good thing. Do we want Australians to become a nation of renters or home owners?

The bigger point that is missed by these parasites is that the overwhelming majority of so-called property investment – 90% – goes into established homes:

Therefore, negative gearing does little to boost actual housing supply and lower rents, but rather raises prices and crowd-out first home buyers.

Moreover, Labor’s policy would channel negative gearing into new homes only, thus helping to boost supply and lower rents at the margin. In fact, several developers have admitted that Labor’s policy would be “a shot in the arm for what is a depleted off-the-plan market”.

Louis Christopher’s argument that “yields on investment properties would have to rise and that would mean rents would have to increase” is dumbfoundingly stupid.

Landlords in Australia already charge what the rental market can take. It is a ‘market’ after all, not a charity. Landlords don’t keep rents low just because they receive negative gearing benefits. Nor will they be able to magically lift rents if/when negative gearing is removed, especially as supply lifts. Remove negative gearing and prices would fall, lifting rental yields. It’s basic economics.

Finally, now is actually a good time to implement Labor’s policy. Since investor demand has already cratered there’s far less risk of investor flight and widespread market disruption than if investor demand was running at the wild levels of two years ago.

What Labor’s policy will do, however, is prevent a future investor bubble, moderate the cycle, and boost the first home buyer share over the longer-term.

Locusts be damned.

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Unconventional Economist

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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Comments

  1. Scare campaign beside scare campaign. Where is their competing policy? Any policy?!? It’s utterly pathetic.

  2. As shown above, when investor demand falls, first home buyer demand rises. This is a good thing. Do we want Australians to become a nation of renters or home owners?

    I think we all know the answer to this question.

  3. Louis C “yields on investment properties would have to rise and that would mean rents would have to increase”.

    Actually Louis if yields must rise, that can also be achieved by property prices falling.

    • Exactly.

      I can only believe that he was misrepresented as he couldn’t possibly have said something so stupid.

  4. I usually expect better from Louis, he is one of the better ones but that is astonishing. They are trying to say they kindly charge less rent as they get a tax break! As for Bouris, he stated just as the bubble popped that the only reason he thinks property is a safe bet is we have RBA and APRA. Following the RC I asked him if that was still the case and he said yes. I watched the big short again yesterday. These people will never see it even whilst it’s happening in front of them.

  5. “The biggest lobby group in real estate, the Property Council of Australia, said the tax would curtail property as an investment option…”

    I’d like to confront these pricks and ask them some questions. For example, why would that be a bad thing? Why is the financialisation of a basic human need like shelter considered to be a good thing? Why would removing a single “investment option” from our society be considered to be a disaster? Are there no other investment options available to people with money to invest? Are there no other options that would benefit society as a result of investment, such as industrial production? I could go on and on asking such questions, but you get my drift.

    These people are mad and dangerous. They should be taken to the vets like dogs that bite people, and given a shot of that green juice to put them to sleep.

      • Like politicians, ABC employees are also bureaucrats & belong to the same most powerful public sector union in Australia where guaranteed obscenely generous salaries and super affords them plentiful amounts of investment properties. Their policy decision making is primarily for self interest, completely legal protected and entrenched. We need a Federal Independent Commission Against Corruption (ICAC) to begin to make these bureaucrats accountable to the people.

    • Jumping jack flash

      Expensive houses are a byproduct of the greatest get-rich-quick scheme in (recent) history.
      There is no way to get rich faster than to convince someone to take on an enormous mountain of debt and then hand it all over.

      Debt needs to be attached to something. To maximise the amount of debt, you maximise the value of thing that the debt is attached to. Banks love attaching debt to houses. There’s nothing safer, or a more expensive “commodity”, than houses.

      However, why stop there? Why not add in a feedback loop that means that the value of houses rise as debt is added to them by way of a lazy and subjective valuation system?
      Then, ignore all risk except for the risk that is aligned with the ever-rising house prices.

      Then it becomes a system for creating infinite debt.
      And with infinite debt comes infinite riches.

  6. truthisfashionable

    Doubling down on bribes to a shrinking ‘generation’.

    Although I recall ‘Gen X’ are also Keen property investors, so called ‘Gen Y’ and now the older ‘Gen Z’ make up the largest voting block in Australia and with a large portion feeling that property investors are assisting in making housing unaffordable, they might find this is one of the least popular arguments.

    https://mccrindle.com.au/insights/blogarchive/australias-population-map-and-generational-profile-update/

    • Until mum & dad, and nan & pop tell them they will be financially decimated, and there will nothing for the gen x’s, or the grandkids to inherit.
      It’s like franking credits, something we didn’t have a generation ago is now something we can’t do without …… ‘or we’ll be living in poverty
      There is no such thing as the Greater good anymore …… it every family for themselves !

      • Jumping jack flash

        Agree, they need to teach the important things about finances in schools.

        They should start off easy, with “debt is bad, mmmkay” for the younger kids, and then move onto something like “debt isn’t real money”, and “no matter what the bank tells you, you’re not a bank, and you’re never going to be able to call debt an asset. Ever.”
        Another good one might be, “Don’t be fooled, kids, equitymate is just debt by another name. Where do you think equitymate money comes from? You can’t actually extract real money from a house, its just an organised pile of stuff you live inside. Equitymate is just debt attached to houses.”
        Perhaps for the older kids throw something in about the madness of crowds.


  7. Nor will they be able to magically lift rents if/when negative gearing is removed, especially as supply lifts. Remove negative gearing and prices would fall, lifting rental yields. It’s basic economics.

    In fact, as long as prices fall faster, yields can still rise at the same time that rents fall e.g. with prices falling greater than 10% in Sydney, any rental price fall up to 10% still results in an increased yield.

  8. This is madness… I didn’t realise investors had such control of yields. They must be so nice to only charge 3% yield, when they could be charging 5%. So benevolent.

  9. “curtail property as an investment option because new stock was only a small proportion of overall housing that investors can buy…”

    Bullish!t. They can build as much as their heart desires.