28 Apr Labor policy to benefit 3% of population – Adrian Kelly
The Real Estate Institute of Australia has reiterated its strong opposition to the Labor Party’s negative gearing and capital gains tax policy despite the fact that Bill Shorten says it will level the playing field. We ask Adrian Kelly REIA President why he thinks that is not a good thing.
Kevin: The Real Estate Institute of Australia has reiterated its strong opposition to the Labor Party’s negative gearing and capital gains tax policy following the announcement that 1 January 2020 would be the start date for their negative gearing and capital gains tax increases, if they were to win the federal election. The Real Estate Institute of Australia, of course, is the national professional association for real estate agents in Australia. Joining me to discuss this and other topics, the organization’s President Adrian Kelly. Adrian, thanks for your time.
Adrian: Thanks for having me, Kevin.
Kevin: Labor’s policy is promising a levelling of the playing field. Surely that would have to be a good thing for first home buyers, wouldn’t it?
Adrian: Well, anything that does level the playing field has to be a good thing for first home buyers, but we need to take into account what this particular policy decision will do across the board for the industry.
Kevin: Adrian, do you have a feel for how many renters there are in Australia?
Adrian: Three million. So that’s quite a large number. It’s close to eight million people which rent across Australia, and if you look at the average investor who wants to buy a home to rent to some of these people, 97% of them prefer to purchase an established home. Whereas, only 3% will buy something brand new off plans. Changing negative gearing so that it only applies to newly built properties is going to have a severe impact on the market.
Kevin: Yeah. I guess if you look in some of the regional areas, the last thing they need is more new homes. It’s more the incentive that needs to be provided for established homes. But surely if we increase supply, that would have to make property more affordable, wouldn’t it?
Adrian: I’m not sure how we would increase supply, Kevin. If you take away the … I mean, a lot of these people actually own those investment properties now. The Labor Party are saying that they’re going to grandfather those so they can still continue to be used. But I just honestly can’t see how the supply will be increased, particularly when, as I said before, 97% of investors prefer to buy established homes rather than build new ones.
Kevin: Yeah. Of course, we hear the argument all the time too, and the REIA says that negative gearing is not necessarily for wealthy investors, and how that’s a bit of a myth. Do you have any understanding or feeling, and I’ll ask you later about the profile of the average investor, but how many investors are there who use negative gearing?
Adrian: I’m not sure what the actual total number is, and perhaps I should know, but what I can tell you is that those investors who choose to negatively gear typically earn less than $80,000 per annum. So you can hardly say that they’re wealthy. And only about two-thirds of those people who do negatively gear only own one investment property. So again, we can hardly call them wealthy people. And in fact, out of all of the people who choose to negatively gear their investment properties, the vast majority of them only own four or five. So they don’t own 10 or 20 investment properties, so I’m not sure that we’re talking about the wealthy or the big end of town.
Kevin: Yeah. It’s the same … For argument’s sake, if we did take away that incentive to negative gear, that is, how fast do you think that would impact investor numbers?
Adrian: It’s the million dollar question, isn’t it? Well, if we look at the experiment back in the Hawke government days, and admittedly that was a few decades ago, but still that’s what we’ve got to go on. And remembering that in today’s market … We’ve got a falling market at the moment, particularly in Melbourne and Sydney. And even our own treasury has said if you’re going to change negative gearing arrangements, it will lead to a further exacerbation of the already falling property market, particularly in Melbourne and Sydney today. So Kevin, I haven’t seen one economist or read one article in a newspaper from people who know what they’re talking about saying, “This is a wonderful idea.” I haven’t seen one.
Kevin: I asked you there about how quickly it would impact investor numbers. Do you have a feeling as to how quickly it would invest property prices negatively or positively? But probably more importantly, rents?
Adrian: When the Hawke government changed negative gearing, the rental market … Or rent for an average three-bedroom home in Sydney rose by 43% within 6 months. And the rents across the country, so the national figure, rose by 22% within 6 months. Now, you could argue that it’s a different market now to what it was back then. I’m not so sure about that. But even if those figures were two-thirds or even half that, then you’re still talking about at a minimum a 20% increase or thereabouts in rent across the country. And that’s a sizable amount, I would have thought. And then not only that, but then the longer term would be that there will be fewer investors wanting to buy established homes because the tax advantages aren’t there to make it worthwhile. They might as well go into shares or something like that.
Kevin: Of course, no one would argue, and I’m sure you and your organisation wouldn’t argue either, that anything we can do to make housing more affordable, particularly to get people into more housing, the better it would be. So let’s try and finish this conversation on a positive note, and that is, there have got to be some solutions. Are there any that you know of that should be discussed and or even tested?
Adrian: I think it’s more of a … We think it’s more of a state thing which needs to be done. One of the things that we don’t have at the moment, Kevin, is a single property minister, which we can go and talk to when we have issues like this. We’re quite fortunate in the Labor Party has said they will consult with industry and stakeholders before they make any changes. I’m not so sure about that, because-
Kevin: I was going to debate that one.
Adrian: They announced changes without telling anybody. But anyway, look-
Kevin: Well, they always say that. Both sides.
Adrian: I know. But we’ll have to get through the election process first, I think, and see who’s in government. Not forgetting that there’s also an upper house to get legislation changes through as well. I suspect the cross bench won’t be too amenable to tenant’s rents going through the roof.
Adrian: But anyway, look, to answer your question, there’s obviously the state-based taxes such as stamp duty, which need to be looked at. And that’s where I feel sorry for first home buyers. If you’re a first home buyer, you need to come up with your deposit at the time of purchase. You need to pay your stamp duty at the time of purchase. And you’ll more than likely also have some mortgage insurance, which you’ll have to pay again at the time of purchase. So you’ve got to come up with a sizable amount of money upfront, and that’s one of the real reasons why it’s difficult for first home buyers to get into the market. So in changing taxation arrangements to make it easier for first home buyers, it doesn’t change the fact they’ve still got to have this large lump sum of capital at the time of purchase. So it’s really looking at things like that for first home buyers, Kevin, which would make life a lot easier for them.
Kevin: Yeah. Because governments are never going to give up any tax too easily, that’s for sure. They’d much rather increase it than take it away. And stamp duty is one of those insidious things that … There is no value for money, frankly. It’s just a rip off.
Adrian: Well this is part of the problem, isn’t it? And we’ve all heard the expression that governments are addicted to things like stamp duty, but I think we’ve all got to be realistic as well. If we start to remove things like stamp duty, then the money’s gotta come from somewhere.
Kevin: That’s right. It does.
Adrian: And I take my hat off to the ACT because they’re moving away from stamp duty and looking at a broad based land tax. So maybe what happens over there in Canberra will be the litmus test as to what the rest of the country might be able to follow, and they’re fading that in over a decade. So it’s not an overnight thing. So we’ll see how that goes.
Kevin: Well, we will in indeed in a lot of ways, in a matter of days or weeks til the election. So we’ll just see what does pan out. I’ve been talking to the Real Estate Institute of Australia’s President Adrian Kelly. Adrian, thank you very much for your time.
Adrian: Thanks for having me, Kevin.