Labor negative gearing decision a victory for common sense

The federal Opposition’s decision to drop its previous approach to negative gearing and capital gains tax is a welcome recognition that these policies would have hurt the economy, cost construction jobs and had little impact on housing affordability.

Modelling undertaken by Deloitte Access Economics, commissioned by the Property Council in 2019, found Labor’s previous policy would have reduced GDP by $1.5 billion, shrunk the construction sector by $766 million, and failed to meet its stated objectives of improving housing affordability and increasing housing supply.

“The Opposition’s previous position on negative gearing and capital gains tax was always the wrong policy, at the wrong time, and voters at two elections knew it,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“Deloitte Access Economics’ comprehensive analysis showed that the policies would have failed the policy tests set out for it.

“We congratulate Opposition Leader Anthony Albanese, his Shadow Treasurer Jim Chalmers and Shadow Housing Minister Jason Clare for seeing sense and providing this certainty well in advance of an election.

“The vast majority of property investors are not rich property barons – they are everyday Australians looking to get ahead and providing the rental accommodation that is needed by the one-third of households who rent.

“ATO data shows that 71 per cent of investors own just one investment property and 19 per cent own just two, while 47 per cent of investors are women.

“This decision means that policy makers can focus on measures that will make a material difference to the pressing challenge of housing affordability and the Property Council looks forward to contributing to that focus,” Mr Morrison said.

Summary of Deloitte Access Economics’ analysis of ALP negative gearing and capital gains taxation policy

The Property Council of Australia commissioned Deloitte Access Economics to analyse the impact of the ALP’s negative gearing and capital gains policies that it took to the 2019 federal election and test them against the key assumptions underpinning the ALP’s policy. 

This report models the ALP’s policies in full.  It draws on detailed econometric modelling of Australia’s housing markets and the national economy for its findings.

Policy assumption

Deloitte finding

The policy changes would boost housing construction and housing supply.

Construction of new housing would drop under this policy, not increase.

Construction of new housing would be 4.1% lower than if there were no policy changes. This equates to a $766 million decline in construction activity in 2019 terms.

There would be no housing supply dividend. This supply drop would be worse in Sydney and Melbourne, and worse for apartment and townhouse developments in inner and middle ring suburbs of our cities.

The policy changes would make housing more affordable.

This policy would have a small impact on housing affordability.

Aggregate Australian housing prices would fall by 4.6% under this policy. Price drops would be greater in Sydney and Melbourne (up to 8%), for apartments and townhouses, and in inner and middle ring areas.

While these price drops are significant, they are unlikely to materially shift the housing affordability equation for buyers.

By 2030 the proportion of homeowners to investors would have increased by only 2.6%. In the main the policy will not convert a long-term renter into a home buyer. It will result in those who are on the way to home ownership getting there a little earlier.

The policy changes will not increase rents.

Rents would increase under this policy because of the lower stock of dwellings for rent in the market, albeit these impacts would be modest (0.5%) and evolve over time.

Rent effects are likely to be unevenly distributed and localised. Rents could be expected to increase the most in Greater Melbourne, followed by Greater Sydney and Greater Adelaide.

The policy changes will not have a negative impact on the economy.

Three scenarios were modelled – all showed the policy would reduce GDP and reduce construction industry jobs over the period 2021 to 2031.

The central scenario shows the policy would:

  • reduce GDP by $1.5 billion (or 0.1%), and

  • lead to a loss of 7,800 full time construction jobs.

This would be a good time in the market to introduce these policy changes.

Deloitte Access Economics found that the current market conditions would make this a bad time to introduce this policy.

The economic costs of introducing such a policy in a falling market are likely to be significantly greater in the short term - partly due to the falls in house prices over the past 18 months, and partly because the weak market backdrop could amplify impacts on investor sentiment and construction activity in the short term.