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Labor negative gearing reforms would push interest rates up, push value down

New research has found that if Labor's proposed blanket negative gearing reform came into effect, some investors could see their interest rates go up and property values go down.

blue spark gears

Labor has proposed to limit negative gearing to new rental properties and halve the capital gains tax (CGT) discount to 25 per cent in the name of housing affordability.

However, a blanket approach levelled at property investors could have “unintended consequences”, property research group RiskWise and WargentAdvisory have found in a new report.

RiskWise chief executive Doron Peleg said fragile property markets and Sydney apartment investors will bear the brunt of the changes.

“[An] unintended consequence would occur in the Sydney unit market where the proposed changes would be the equivalent to a sudden 1.15 per cent increase in interest rates,” he said.

 
 

The 10 most vulnerable geographical areas would also see an average 9.5 per cent fall in value.

These areas are predominantly regional, with Central Queensland’s Fitzroy estimated to see values fall 12.1 per cent. However, inner Perth would also see a 12 per cent fall.

WargentAdvisory director and report co-author Pete Wargent said for regional or resource-driven areas, policies which dampen demand are “the last thing they need”.

“An introduction of Labor’s proposed changes to negative gearing needs a more nuanced response with some mitigating processes and policies that could be implemented so there are no unintended consequences,” Mr Wargent said.

Warning that discounts limited to new dwellings could trigger distortions in the investor market, he said the initial positive impacts of negative gearing and CGT reform will only persist if supply-side policies were also introduced.

Mr Peleg agreed, pointing to the softening impact of recent investor-lending restrictions.

“Credit restrictions have had a direct impact on investors in the Australian housing market. As a result, dwelling prices in Sydney and Melbourne showed a decelerating growth rate, followed by price reductions in Sydney and, to a lesser extent, Melbourne,” he said.

“In a relatively short period of time, the landscape for residential property in Australia has changed significantly and this necessitates thorough modelling and impact analysis of Labor’s proposed tax reform package.

“The bottom line is that the proposed reforms will achieve some of the ALP’s stated objectives, including tackling the fiscal challenge and budget repair, but not the others.”

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The report identified these as the 10 areas to be the most impacted by the proposed reforms:

Greater capital city statistical area Geographical area Property type Renter ratio 12 month change in median avm

36 month change in median avm

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  • avatar
    Joe wrote:
    Labor should ask Paul Keating what happened when he removed negative gearing in the 1980's. Rents went up as supply of property declined and the economy suffered as builders didn't have much work in construction. People are happy for house prices to go down until they have bought their first home, so then they pray that house prices go up.
    It was 1986 And Keating quickly reversed that decision within 2 years and that kicked off the next property boom
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  • avatar
    QUOTE "tackling the fiscal challenge and budget repair" These people have NO IDEA! Removing negative gearing is a zero sum equation because it only affects cashflow - not the overall amount of tax collected. What expenses investors can no longer claim today (if negative gearing is removed) can always be claimed tomorrow as they are entitled under the Income Tax Assessment Act. So much for budget repair.Typical of Labor to make such incorrect revenue calculations Im afraid.
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  • avatar
    Labor should ask Paul Keating what happened when he removed negative gearing in the 1980's. Rents went up as supply of property declined and the economy suffered as builders didn't have much work in construction. People are happy for house prices to go down until they have bought their first home, so then they pray that house prices go up.
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