You only have to look at what happened last time labor fiddled with negative gearing.  We are reminded about what happened as we speak to the PIPA Chair Peter Koulizos.  He doesn’t mince his words with us this week.
Transcripts:
Kevin:   Always, as we approach any election, we start to see politicians coming out and making sweeping statements about changes they can make. It’s in some ways a bit of low hanging fruit. But we have seen some consistency from the labour party, proposing changes to negative gearing and capital gains tax now repeatedly. And it’s very much on the horizon and in the thinking of many investors and a lot of professionals, industry bodies, around Australia.
Kevin:   Joining me to talk about this, PIPA, the PIPA chairman of the property investors, investment professionals of Australia, Peter Koulitzos. In a statement they’ve put out saying that new modelling showed labor’s proposed changes to negative gearing and capital gains tax will decimate the property market. He joins me.
Kevin:   Peter, it’s a really big statement.
Peter:   Well, I’m only going by what happened in the past. You may remember, Kevin, you and I are about similar era. Back in the eighties, Keating and Hawke made changes to property taxation and that only lasted for six months, because it actually decimated the property market. The building industry was up in arms. The property industry was up in arms. And here we have now, thirty years on, what short memories people have. And they want to do something similar.
Peter:   Investors are easy punching bags, because they are seen to be the uber rich, but the reality is the vast majority of investors hold the one, maybe two properties, and they’re holding them because they know that superannuation just won’t be enough for their retirement. So even if they have one freehold house at the end, which they can sell or use the rent to help their retirement, I think that’s a fantastic thing. It’s less burden on the social welfare system, they’re not on the pension, and people looking after themselves. I think that’s a great thing to do.
Peter:   But what this is going to do is actually deter investors from getting into the property market, but not only is it bad news for the investors but it’s also those people looking to rent, because if there are less people going to invest in property, then there is going to be less properties available to rent. Now unless coinciding with this particular strategy is a social housing strategy, where the government plans to build more houses to put people in, what do they expect? What do they think’s going to happen?
Kevin:   You point out in your release that property investors provide housing for 30% of Australians. I actually thought, Peter, that it was higher than that. But even accepting your figure of 30%, that obviously would go into decline, which is really what you’re predicting, and there would be a need for the government to step up and support that more. I mean, there’s every indication that that figure may need to grow as opposed to shrink.
Peter:   That’s right, because of a number of different reasons there are more people renting nowadays than are purchasing their own homes, and it’s not like the 1950s and ’60s where the housing commissions and the housing trusts around Australia were building social housing for low income earners. Now whatever they’re building is more like emergency housing, and those people on low incomes have to fend for themselves. There is some support with bond guarantees and the government offering them, state governments, offering them say two weeks’ rent in advance or rental assistance, but in the main the government is getting out of supplying social housing. So if they want to bring in this, which is bound to decrease overall the number of rental properties available, because they’ll be less invested interest in investing in property, they need to boost the number of houses that they build.
Kevin:   One of the reasons touted for playing with negative gearing is that it’s going to actually have an effect on housing affordability. For the life of me I can’t see that happening. I can’t see it occurring. And as you pointed out right at the outset, it didn’t happen last time they tried to play around with it. It didn’t take them long to realise that that wasn’t going to happen, Peter.
Peter:   Well, that’s right. Six months it took them before they changed it back again. So what I am suggesting, Kevin, is that if the government feels that there needs to be changes to negative gearing, and capital gains tax, that’s okay, but why don’t they get together with industry and professional bodies at a round table to have a discussion on what the government is trying to achieve, and to either eliminate or at least minimise any negative impacts, not just on the property industry or property investors but on the economy. Because this is so… this is so short sighted and in my opinion going for votes. When you do the numbers, there is no doubt that an investor pays far more in income tax when the property is positively geared, and the more so in capital gains tax when they sell the property, than the benefits that they get from being able to deduct their expenses. The government is better off encouraging more people to buy investment property rather than discouraging.
Kevin:   Two things here. I’m amazed to hear you say that they should be sitting at a round table and talking to industry professionals about this. I’m staggered that they haven’t, number one, which says to me that their research is pretty shallow. And the other thing is, what does organisations like yours have to do to get this message through?
Peter:   I think the good news, Kevin, is PIPA is slowly growing its membership with property professionals. PICA is exponentially increasing their members. So I think when we have the weight of numbers, then they will have to take notice.
Kevin:   Why two associations? Why PIPA and PICA? The PIPA by the way is Property Investment Professionals of Australia, and Peter Koulitzos is the chairman of that. Ben Kingsley, he used to be the chairman of PIPA I think from memory, is the chairman of the Property Investors Council of Australia. But why do you need two bodies?
Peter:   So one is for the people that work in the industry, like property investment advisors, accountants, builders and so on, and the other one is purely for property investors, those people that actually own investment properties.
Kevin:   Yeah, unfortunately as we’ve highlighted even in this interview, a lot of those investors are mom and dad type investors. In fact 70% of them own only one property. I just question whether they have the time to get involved in something like PICA, which is really what you need.
Peter:   You do, you do. I would strongly encourage people that are listening into this, Kevin, to go to the PICA website. Register, it only costs $5, because the more members that we have then the more government will take notice of what we have to say.
Kevin:   PICA.asn.au and PIPA, very similar. In fact there’s a link on the home page, on Real Estate Talk to take you to PIPA, but it’s PIPA.asn.au, so they’re the two websites to go to. Can I just get one more comment from you before you go? I think you’ve probably already told us, but what do you think they should be doing to help-
Peter:   As i said, I think the government needs to get together. Not just with PIPA and PICA, but the other property and industry bodies so as to get their input as to what effects not just this might have, this proposal, but other proposals in relation to property and construction and investment may have in the real world.
Kevin:   So what are you doing about that, Peter? Have you invited them to do that? Have you written to them?
Peter:   PIPA’s focus has been on trying to bring in regulation into the property investment advice industry. We did team up with other property organisations last year when the labour government first touted this proposal, but as we get closer and closer to the federal election, then PIPA and other property industry bodies will be far more active, so far as this is concerned.
Kevin:   Peter, thanks very much for your time.
Peter:   My pleasure, thank you Kevin.