The Greens are putting pressure on the Labor Government by delaying Labor's Help to Buy bill and force the Government to the table on winding back negative gearing and capital gains discounts for property investors.
It appears the government may be prepared to come to the table.
Adam Bandt MP: “Last week the Greens told Labor we wanted to wind back negative gearing and capital gains tax discounts as part of passing the government’s weak housing bill.
“Labor said it was impossible. Now they admit it’s possible. They must commit to doing it."
Prime Minister Anthony Albanese and Treasurer Jim Chalmers have downplayed the possibility of immediate reforms but haven't completely ruled them out.
Economists like Richard Holden and Saul Eslake advocate for revisiting negative gearing, arguing it inflates housing demand and makes it harder for owner-occupiers to compete with investors.
Who would be the losers if these proposed reforms came into affect?
Short answer: Every homeowner! and possibly renters too.
Modelling forcasts have predicted a 10% decline in property prices in the first 5 years.
Rents would be impacted as-well. Negative Gearing has actually reduced rental yeilds as property investors often accept short-term losses on their property (which negative gearing allows them to deduct) because they anticipate that the property’s value will increase over time.
Negative Gearing Reforms linked to past election loses
Several Labor MPs are "open" to reforms, acknowledging the need to address housing affordability, but there is a divide, with some cautioning against revisiting the issue due to past electoral failures.
With 67% of Australian's being home owners these reforms would negatively impact more than two thirds of the population and would possibly lead to another election loss linked to negative gearing reforms next year.
How does negative gearing benefit homeowners?
Increased Demand: The ability for investors to claim negative gearing deductions often leads to increased demand for property, which can drive up property values. Homeowners may see their property's value appreciate more quickly due to this investor-driven demand.
Equity Growth: As property values rise, homeowners experience an increase in equity, which they can potentially use to refinance their mortgage, invest in additional properties, or fund renovations.
How negative gearing supports the rental market?
Rental Supply: Negative gearing encourages investors to buy properties, thus increasing the supply of rental properties in the market. Homeowners who decide to rent out their property can benefit from a larger pool of renters and potentially higher rental demand.
Broader economic benefits
Encouragement of Housing Development and Construction:
Investors often buy new properties, which can spur demand for housing construction and create jobs in the building and real estate sectors. This, in turn, has positive ripple effects across the economy.
Some argue that this supports the supply of housing, although the impact on affordability remains contested.
Supporting the Rental Market:
Negative gearing incentivises investment in the rental market, providing housing for those who either cannot afford to buy or prefer to rent. This helps maintain a larger rental stock, which could stabilise rent prices in the long run.
What do we think?
For meaningful reform, the government needs to be willing to invest political capital, particularly in the early stages of a parliamentary term. Reforming negative gearing is politically sensitive due to its popularity among middle-class voters and investors.
Although there is momentum for change among some Labor MPs, the government's cautious approach indicates the reforms might be deferred unless there is a shift in public opinion.
As it stands we don't think Labor can touch negative gearing and stay in power at the next election, but we will see.