PICA launches campaign against Labor’s "poorly constructed" negative-gearing policy

Labor’s proposed changes to negative gearing and Capital Gains Tax (CGT) will not serve Australia well both economically and socially.

You can’t take away upwards of 30 per cent of buyer demand and expect all property values to hold up.

Ask yourself, who’s going to buy a brand-new property and run it at a loss for several years, if they know these new properties aren’t going to have the buyer demand that they once had?

According to PICA, Labor’s proposed policy changes will have a number of damaging consequences, including:

• The vast majority of property prices will fall, affecting all property owners – not just investors.

• Jobs will go – both directly (construction, materials, trades, etc.) as confidence in the sector drops and indirectly (retail, furnishings, finance, etc.) due to the “wealth effect” principal that follows.

• The economy will lag significantly – and Labor could be responsible for breaking Australia’s world record of unbroken economic growth by causing our first recession in more than 27 years.

• Rents will rise as fewer new properties are bought or built to lease – higher demand and lower supply, as our population continues to grow.

We would argue to not be misled by Labor’s modelling or anyone’s modelling indicating that negative gearing will only marginally affect property prices across the entire property market.

All the modelling is flawed because it doesn’t adequately take into consideration what we believe will be a big shift in buyer behaviour. A macro reform of this magnitude will absolutely impact buyer behaviour significantly, so much so that it’s very difficult to accurately forecast any realistic model.

How we base our view on property prices is looking at what investors will do if there is uncertainty about price growth. All you need to do is ask a simple question like, ‘Would you invest in property if it didn’t grow in value, yet you had to pay all the loan interest over the years?’ We all know the answer to that question.

According to PICA, the one exception to falling property prices in the vast majority of markets will be soaring land values for inner-city land, as well as the risk of over-development in city fringe suburbs.

Demand for inner-city land will soar as investors opt for quality as well as for development potential as close to the city as possible, which will push up prices.

While PICA is highly concerned about the significant economic risk of Labor’s proposed changes, it wants government to introduce regulation in the property investment industry to better protect consumers.

We don’t support Labor’s proposal for changes to negative gearing or CGT, however we are open to some potential reform to CGT exemptions to encourage long-term investors and discourage short-term speculators into the market

We want to cooperate with all political parties and regulators to help them understand the importance of the residential property market in developing good sensible and sustainable policy. This is the reason why we have created this petition, as there are many of us who are very concerned and through this petition we can show our concern.

Ben Kinglsey is the chairman at Property Investors Council of Australia.