The building industry has responded to Opposition Leader Bill Shorten’s announcement on Saturday that a Labor government would restrict negative gearing to investment into new housing and will also cut the capital gains tax discount to 25 percent from 50 percent.
“Our concern is that Labor’s policy is a populist response to those who demonise housing and negative gearing as primary cause of our fiscal and social problems,” said Wilhelm Harnisch, CEO of Master Builders Australia. “Investing in new private rental housing is not evil. The private rental market is a critical supplement to the public and social housing rental sectors. The private rental market also provides a valuable role in supplementing the retirement income strategy for Mum and Dads on low and middle incomes. Housing is an asset class just as shares and just as shares, interest deductibility in investment housing should remain as a tax feature.”
Master Builders Australia said the ALP’S new policy position will be controversial by moving away from a long held bipartisan approach since the 1990s after the failed negative gearing policy experiment. “The quarantining of negative gearing to newly constructed residential buildings has certain attractions for the residential building sector but has a sting in the tail by reducing the Capital Gains Tax discount from 50 percent to 25 percent,” said Harnisch. “The ALP policy leaves important questions unanswered including how to overcome structural impediments to increasing housing supply which is the only effective way to truly tackle housing affordability for both homeowners and renters.”
Stockland chief executive Mark Steinert also criticised the ALP policy. “Last time they cut negative gearing on rental properties, it was reinstated within a few months because it had such a devastating impact on the rental market,” said Steinert. “I can’t see how this will be any different … The affordability challenge is that you need more rental property, and negative gearing goes directly to meeting that.”
Aussie Home Loans founder John Symond warned the policy could lead to house price falls on properties owned by investors, many of whom were on average incomes and had fought hard to make the investment.
Property Council of Australia chief executive Ken Morrison labelled the policy “dangerous,” saying it was risky to play with the property market when it is so important to the economic growth of Australia.
Defending the announcement, Shadow Treasurer Chris Bowen said Labor is flagging its intentions very early and clearly so that Australians can vote on competing plans at the next election. “So far we’re the only side turning up at the election with any plans,” Bowen told the ABC.
Grattan Institute chief executive John Daley said the policy could lead to house price falls of less than 10 percent, but would create a market where renters would find it easier to become homeowners. “It will probably reduce house prices relative to where they are now, bearing in mind the impact won’t be huge — it won’t be as large as the swings you’d get in a normal housing cycle, but it will lead to an increase in more long-term home ownership … it’s a terrific thing,” said Daley.