Stop negative talk about negative gearing – Brian White

Federal Labor is attacking negative gearing again with assertions about how it is responsible for growing property prices.  Brian White joins us to set the record straight.
Kevin:  Here we go again, more talk about negative gearing and fiddling around the edges. We really need to address this as a very serious issue because at the end of the day, it just seems to me as if this is just a bit of political low-hanging fruit as a popular move for the Labor Party.
I was staggered to see some recent comments made by the Grattan Institute, which at the end of the day, I have to point out is really Kevin Rudd’s $50 million think tank. It was quoted as saying about the Grattan Institute that it would be absolutely amazed if it could actually accommodate an opinion that’s critical of the Labor Party, and this is absolute proof of it.
I want to get a little bit more comment on this issue from Brian White who is the chairman of the Ray White Group in Australasia.
Brian, thank you for your time.
Brian:  Good morning, Kevin.
Kevin:  Brian, I’m just wondering your comment. You were actually in the same story on the ABC. What are your comments about what the Grattan Institute is saying here?
Brian:  The best contribution I can make to this debate is the experience that my company went through, and the industry, of course, went through back in 1987 when the Hawke government introduced the elimination of negative gearing.
At that time, there was enormous buildup. All the research had said this was going to be good, that there would be minimal disruption, it was going to make everything so much more affordable, and so forth. So, I’ve been through that experience, and it’s not that wasn’t long ago.
What I’m finding disappointing at the moment is no one is actually going back and saying “What did go wrong?” because it was brought in with all of the fanfare and inside two years, it was abandoned by the same government. How many major policies that are brought in with fanfare and “Aren’t we brave? Aren’t we courageous? And aren’t we doing a wonderful thing for the country?” and then within a couple of years, they have to abandon it?
One of the elements in this debate is there are far more people owning properties than not owning properties at the moment. There’s a massive number of homeowners who don’t live in Sydney and Melbourne where price growth has been quite constrained, even in quite a buoyant overall market.
The psychology that came in in 1987… Is there now an attack on properties? Is property not going to be a good thing to invest in? And Kevin, what percentage of Australians see property as their core asset, their core financial structure? The terror that was going through in that 1987 period after this was introduced is just so memorable. It’s probably the more memorable part of my entire career.
Kevin:  Like you, I’m probably a little bit dumbfounded that the Conservative Party are not using this experience, not talking about it, because we have to learn from our past experiences.
Brian, I think the other point, too, is that many people think that negative gearing is there just to benefit the rich, wealthy landlords. Who are the main beneficiaries of negative gearing? Who is actually using it?
Brian:  Once again, it’s just a normal, average Australian. People go about their lives. They seek to maximize the opportunity to be able to comfortable in their retirement. The first ambition is ownership of a property and a home, and it’s always been difficult.
I can remember when I was in my early twenties, “How could we afford to buy a home?” It was one of the cheapest homes imaginable, and gradually, we were able to trade that. Many people think “I should be able to buy my final home from day one.” We’ve never had that.
But the thing is once people have got on top of their own home, their payments, and so forth, the potential then to buy an investment property and then have that work for them is so strong. The great majority of people who are involved in this negative gearing are the normal mom and dad. It’s almost as if the negative gearing was introduced to encourage people to invest, encourage people to take ownership of their long-term financial needs.
Kevin:  I think another point, too, Brian is that yes, all of those things are very, very true, that this has encouraged people to invest. But it also is increasing the amount of stock that’s available for people who want to rent or who need to rent.
The question I would ask you is without investors, where are these properties going to come from? They’re going to have to come from the government, and in my opinion, they do not have a good track record of providing rental accommodation.
Brian:  Of course. When those properties are provided, they’re often sub-standard, they’re in locations that don’t work for people. People are renting in suburbs where they need to be. They need to be either close to aging parents, a particular school, or a particular job. I think investors have done a great thing for our housing population. Eliminate that and pressure on rent is going to be massive. That was beginning to happen right back in 1987.
Kevin:  This is the part that dumbfounds me, too. Listening to the Grattan Institute in the ABC program, without negative gearing tax benefits, rents would have to rise – a natural consequence, isn’t it?
Brian:  Absolutely. The first thing that happened is that prices dropped, and you think “Isn’t that a good thing, more people are going to be able to acquire?” But what we’ve found is that first-home buyers, they were leaving the market even when properties became more affordable because they kept fearing the prices will keep dropping further and further.
Over my career, it has never been easy for people to own their first home, irrespective of prices. It’s one of the great ambitions that individuals have and when they stick at it, it happens.
Kevin:  By itself, can tax changes solve Australia’s problems with housing affordability, Brian?
Brian:  No, I think Australia is blessed with the structure that we currently have. I don’t understand why there’s this obsession with “We have to make everything more affordable.” Well, more affordable means dropped prices.
You only have to remember the bravado and the confidence, and the “Look at us” that the Hawke government had when they introduced this policy, “Isn’t what we’re doing wonderful for the country?” and inside two years, they had abandoned it.
The psychology of the whole thing was so strong, and it’s the psychology of “Owning property is probably not a good thing. We don’t know when the next hit might come.” There was a message out that we probably should steer clear of property.
When I interviewed the average Australian, no matter where they’re living – in a capital city, in a regional city, or anywhere – fundamentally, their key pride possession is the property they’re living in.
Kevin:  Let’s hope those memories will stay with us, Brian, as we continue this debate, and hopefully, it won’t go on for too much longer and they’ll resist that temptation to trim around the edges. Thank you for your thoughts. They’re well thought-out. I can hear the frustration in your voice, and I share that with you, Brian.
Brian White has been my guest. He’s the chairman of the Ray White Group. Brian, thanks for your time.
Brian:  Thank you, Kevin.

Leave a Reply