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.
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 PerthPerth, TAS Perth, WA 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.”
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 | Properties in pipeline | Properties in pipeline as a % of total properties | Average vacancy rate last 12 months | Overall potential reduction |
| Greater Adelaide | Adelaide - Central and Hills | U | 67.6% | 2.7% | 8.7% | 3,781 | 12.4% | 5.3% | -6.9% |
| Greater Brisbane | Brisbane - North | U | 55.1% | -2.4% | 1.3% | 3,379 | 16.4% | 5.9% | -10.0% |
| Greater Brisbane | Brisbane - South | U | 50.8% | -2.0% | 3.2% | 8,043 | 25.1% | 5.5% | -8.9% |
| Greater Brisbane | Brisbane Inner City | U | 63.5% | -1.1% | -4.3% | 16,396 | 22.3% | 5.9% | -7.7% |
| Rest of QLD | Darling Downs - Maranoa | U | 42.9% | -3.4% | -2.3% | 172 | 8.2% | 5.3% | -8.8% |
| Greater Darwin | Darwin | U | 66.2% | -7.8% | -16.4% | 707 | 3.6% | 6.9% | -11.4% |
| Rest of NSW | Far West and Orana | U | 54.0% | 2.2% | 10.4% | 131 | 7.0% | 4.6% | -10.2% |
| Rest of QLD | Fitzroy (Central QLD) | U | 53.7% | -5.3% | -20.3% | 470 | 5.2% | 7.1% | -12.1% |
| Rest of QLD | Mackay | U | 51.6% | 0.4% | -18.0% | 620 | 5.8% | 5.4% | -7.3% |
| Greater Perth | Perth - Inner | U | 48.0% | -6.3% | -16.8% | 4,031 | 8.3% | 6.6% | -12.0% |
