Time to boycott Raine and Horne

Via Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan Institute at The Conversation:

The lowest blow of this election campaign may have come from a firm of real estate agents that abused its position of trust to scare renters about Labor’s proposed negative gearing changes.

If you are one of those renters, relax. You have nothing to fear from the changes. You might even benefit from them. The only interests the real estate firm is protecting is its own.

Late last week Raine & Horne principal Graham Cockerill wrote to tenants saying Labor’s changes would be “devastating” and including material from the Real Estate Institute of Australia warning of what might happen if “the planned changes to negative gearing do go ahead”.

“The fall in property prices will decrease the value of 18 million Australians’ retirement nest eggs,” and “rents will rise” the material warns. “Further, government savings will be less than estimated, unemployment will rise and our whole economy will be in jeopardy.”

Other renters have received official looking material apparently sent by the Liberal Party reading “Final Notice: Rent Increase”.

It’s a jumped-up scare campaign. But some renters may give it more credibility than it’s worth because some of it comes from the people who normally notify you when your rent is going up.

Here are some facts.

Labor’s policy will not raise rents.

Real estate agents don’t decide rents, landlords do.

The Labor policy won’t fundamentally change the balance of supply and demand in the rental market.

Yes, if there are fewer cashed-up investors that might mean fewer rental properties. But those properties won’t disappear – home buyers will move in, so there will be fewer renters.

And the policy shouldn’t reduce the supply of new homes, because most investment lending goes to existing rather than new homes. Labor’s policy actually leaves in place the tax breaks for people who invest in new homes.

Some of the renters targeted by Raine & Horne might be saving to buy a home. If you are one of them, here are some more facts.

Labor’s policy will help renters buy houses

You stand to benefit from the Labor policy. If there are fewer taxpayer dollars in the hands of property investors, that will boost your prospects of being able to buy a home yourself.

If there is reduced demand from investors, house prices will fall. The fall will be modest – we at Grattan Institute calculate it will be in the range of 1% to 2%. The Commonwealth and NSW Treasuries estimate similar modest price falls.

So what about the headlines you might have seen about 10% or 20% price falls?

All those estimates were prepared by – or paid for by – the property industry. If you detect a pattern you are right. Well-resourced property groups that stand to lose from capital gains tax and negative gearing changes have been muddying the water for a long time now.

The industry talks its own book

Here are a few facts that real estate agents aren’t rushing to tell you. Negative gearing and the capital gains tax discount work together to create a very generous tax regime for the property industry. Investors write off their losses after interest costs in full against the taxes on their wages. But when they sell, they only pay tax on half their gain. Given strong growth in property prices and low inflation, some wage earners end up paying less tax than if they had not invested at all, despite the profits on the investments.

And like most tax concessions, people with higher incomes benefit the most. That’s why the share of anaesthetists negatively gearing is almost triple that for nurses, and the average tax benefits they receive are around 11 times higher.

The end result is that the government has been subsidising investors to buy their second, third or tenth property while at the same time crying crocodile tears about the fact that lots of young people trying to buy their first home are locked out of the market.

The industry claims of rising unemployment and putting the economy “in jeopardy” show a similar disregard for facts. The Labor policies will collect on average an extra A$3 billion to A$4 billion a year in revenue for the government over the first decade, less than a 1% increase in the total tax take. Much of that money will go back into the economy through reductions in other taxes or increases in spending. Any negative overall effects from the higher levels of tax will be imperceptibly small across a A$1.8 trillion economy.

There is, however, one industry that might go backwards.

Real estate agents take healthy commissions from housing investors. Investors, particularly negatively geared ones, also turn over properties faster than homeowners. So real estate agents benefit when there are more properties in the hands of investors and fewer in the hands of homeowners.

Don’t be scared by the real estate agents’ campaign. Labor’s negative gearing policy won’t raise your rent. And if you’re trying to buy your first home, it just might boost your chances.

Any firm that is so casually prepared to lie to create fear in its own interests has clearly lost its social licence to operate. Given there will be no punishment, indeed, the firm appears to be in agreement with the Coalition Government, it is time we spread the word far and wide never to use Raine and Horne services again.

Pass it on.

Comments

  1. Pity the people who are getting this shite through the mail box probably wont be reading this article. The Murdoch press is supporting this nonsensical view also. Poor people.

  2. How is a house a retirement nest egg? It’s just a cheaper place to live in than renting IF you don’t have major repairs to perform. Given the amount of pensioners with million dollar abodes, how is it helping them retire? It’s not, but it’s making young people pay twice, once for their pensions through tax and then paying through the nose for a place to live when they finally die and the kids sell it off (tax free)

    • Yep.

      It’s not a nest egg. It’s a nest. Having one fully owned in your name, debt free, at retirement is a good thing. Having a debt against your home at retirement means if anything goes wrong it can be taken from you. Very risky strategy.

  3. I rented from them in Beerwah and a couple of them were horrible. Well they were sold out to First National now it makes sense.

  4. Landlords decide rents? LOLOL.

    I always thought markets and capacity to pay do that. Our benevolent infestor friends are just along for the rollercoaster ride. At this point in the cycle they’ve just picked up the sick bag.

  5. – That’s precisely why Labor shouldn’t have touched Negative Gearing at all before this election.

  6. The entire election campaign has been infested with lies. If we cannot rely on the media to hold crooked politicians and businesses to account we have failed as a democracy and now we can look forward to the ugly denouement of a broken society. We are all Humpty Dumpty now

  7. kiwikarynMEMBER

    Well, negative gearing has just been canned in NZ. No grandfathering either. So we have a real life example to watch as to whether rents go up or go down. All I know is that there are a lot of investment properties currently on the market, and not selling. So one tick for falling prices, as that will be the inevitable outcome of the rush for the exits.

      • kiwikarynMEMBER

        All assets. Its being ringfenced, so you can only offset investment losses from investment income. Will take effect from 1 April 2019 once the Bill is signed into law.

      • @Kiwikaryn

        So typical Labor policy that is half-baked in thought and steeped in class warfare, but so poorly thought-out it actually benefits the rich and disadvantages the poor.

        So those who earn 100% investment income can offset other investment losses, but those with PAYG income cannot offset the investment loss. So the rich will pay less tax than the (poorer) PAYG earning investor.

    • Bouris looks mighty disheveled… kinda like after a 3 days meth bender, sobering up with some paint-stripping strength metho…

    • I wonder whether they can be referred to ACMA for SPAM Act violations. I suspect there might be an issue there stemming from improper use of tenant information.

  8. Careful – encouraging a boycott may be illegal in some circumstances under the competition law (refer secondary boycotts)…