Negative gearing changes could see values slump by 6%


A new report has suggested that changes to negative gearing policy could push rents up dramatically, while simultaneously putting a dampener on property values. 

The report from BIS Shrapnel, predicting that changes to negative gearing could push unit rents up by as much as ten per cent and reduce unit values by 6 per cent by 2026, has reignited fears that proposed policy changes will be detrimental to the property market.

However, questions over its commissioning have raised doubts as to its accuracy.

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The Economic Impact of Limiting the Tax Deductibility of Negatively Geared Residential Investment Properties estimates that unit renters in Melbourne and Adelaide will bear the brunt of any rental increases, with rents to increase by 9.6 per cent and 10 per cent respectively according to figures reported by Fairfax Media.

Sydney would cop the largest reduction in unit values, values falling from $873,000 at what the company terms “full negative gearing” to $820,000 at “limited negative gearing” - a difference of 6.1 per cent.

The report was compiled using modelling based on changes to investor tax concessions, changes that resemble the Labor Party's proposals on negative gearing.

According to an executive summary issued by the company, BIS Shrapnel based its findings on an alternative case that assumes the following: 

• Abolition for established dwellings – removal of tax deductibility of losses on established
residential property against general income

• New properties exempt – the change applies to established dwellings only; new dwellings
continue to attract concession as per usual

• Grandfathering – the new policy applies to purchases of property made on or after 1 July
2016, but purchases of property made before 1 July 2016 would not be affected

• Deductibility within property portfolio – no restriction on negative gearing deductions
against another property owned by the same taxpayer

• No change to related taxes – capital gains tax and stamp duty remain unchanged

• No change to other asset classes – negative gearing offset remains for shares, etc.

However, Shadow Treasurer Chris Bowen released a statement on Wednesday slamming the report’s analysis of changes that are “purporting to be Labor policy”.

“It ain’t Labor’s policy. It isn’t modelling. And it is not analysis that stands up to any scrutiny,” the statement said.

“The report is full of incorrect and quite frankly bizarre assumptions.”

BIS Shrapnel has refused to disclose the identity of the report’s commissioning body, leading Labor to raise questions about the report’s independence.

“And by the way, who was the private client who commissioned it?” Mr Bowen said.

The report's release has prompted the Real Estate Institute of Queensland (REIQ) to reiterate its opposition to Labor's current proposed changes to negative gearing

“The BIS Shrapnel report confirms what the REIQ has been saying all along – that investors would abandon property as an asset class, causing rents to rise and housing affordability to be crippled,” REIQ CEO Antonia Mercorella said.

“Any changes to negative gearing would be disastrous in Queensland, pushing thousands of families into financial distress as rents rise as the predictable result of diminishing supply.”

The release of the report is the latest development in an ongoing saga that has dominated headlines and parliamentary sitting times in recent weeks, following ALP leader Bill Shorten’s announcement that a Labor government would restrict negative gearing to new builds only.

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