Extract from The Guardian
Malcolm Turnbull – channelling his inner Tony Abbott – is claiming
Labor’s plans to wind back negative gearing and capital gains tax
discounts will “smash” the value of everyone’s house.
The only problem for the prime minister who promised evidence-based policy making is that there’s no evidence to support his claim. Even those who agree there might be some reduction in house prices, say the impacts would be one-off and small.
And the property industry – which hates Labor’s changes – has modelling that says removing negative gearing could actually push house prices up and that the exact impact is hard to know. Either way, no smashing.
Except in the House of Representatives.
“They want the price of your home to go down, that is their objective and if they win the election they will succeed in smashing home values ... vote Labor and be poorer. Vote Labor and see your house price go down,” Turnbull said in a hyperbolic question time attack almost worthy of the $100 lamb roast.
“Every single home owner in every single electorate represented in this House will be poorer if the Labor party is elected to government,” he claimed.
Labor says its policy would improve housing affordability over time, so presumably it believes its policy will cause house prices to be somewhat lower than they would have been without the change. It has released some analysis to back that contention, but no detailed quantification.
So here we are, back in the throes of a full-voiced evidence-free “he said, she said” fight. Feels like we’ve never been away. Still, let’s look at the evidence that does exist.
The closest thing to a quantification comes in the Grattan Institute’s submission to a Senate inquiry on tax deductions, which finds that limiting negative gearing could have a one-off impact on house prices of between 1% and 2%. Whether that translates into a slightly slower increase in prices than would otherwise have been the case or a small absolute price reduction depends on the property market in a particular area when the change comes in.
Curiously, actual modelling conducted by the Housing Industry Association suggests that limiting negative gearing could actually cause house prices to go up. That contradicts both Turnbull’s “house prices smashed” argument and Labor’s housing affordability claims.
Housing would become “more expensive”, the modelling report, by Independent Economics, said.
“Under current policy settings, discounting residential negative gearing in isolation is a retrograde step for tax reform, in terms of both efficiency and equity. By adding to the existing high tax burden in the housing market, it would reduce Australian living standards. By reducing the supply of housing, it would erode housing affordability for both renters and owner-occupiers,” it found.
And the Property Council – which has already started a campaign against Labor’s changes – said it didn’t know what the impact would be.
“We haven’t made any claims about the impact of their policy on residential house prices ... We haven’t undertaken any modelling on the impact of the opposition’s proposed changes to negative gearing and capital gains tax on house prices – in fact, we would like to see the opposition’s modelling,” said the council’s chief executive, Ken Morrison.
An Acil-Allen Consulting report prepared for the council found it was very difficult to know the impact of winding back capital gains tax discounts and negative gearing but also suggested prices could rise.
“Removing negative gearing or the CGT discount altogether for property will dampen investment, diminish rental supply and make it more likely that in the short to medium-term rents and property prices will increase,” the report said.
But it warned “it is not sound analysis to simply consider the effects of taxation arrangements on house prices. The cost of housing is shaped by a range of factors influencing demand and supply and hence it is hard to analyse the housing market in isolation from other markets and without considering the local, national and international interconnections. Furthermore, the evidence in this report shows that quantifying the effects of negative gearing on housing prices is a difficult task that would require modelling of complex investors’ capital movements and secondary behavioural impacts as well as their effects on the macroeconomy.
“While negative gearing arrangements are unlikely to singlehandedly change the fundamentals of housing demand and supply, they do influence investment decisions (including the decision to invest in housing and the rental prices charged for an investment property). Given the complex interaction of factors affecting supply and demand for housing, the outcomes of significant changes to negative gearing on the housing market are uncertain.”
A report by the progressive McKell Institute, which Labor drew upon when developing its policy found it was “unlikely that the changes to negative gearing proposed in this report would have a material effect on prices in the near term”.
“Over time it is expected that these reforms would improve housing affordability. As other reports, including the Henry Review, have noted tax settings play a relatively minor role in the price of housing. Other factors such as market fundamentals, zoning and building regulations and interest rates have a more material impact on house prices than tax settings.”
Presumably, the parliamentary budget office also made some assumptions about the impact of the policy when it costed it for Labor, but Labor has not released those detailed costings.
No evidence then, and certainly nothing to suggest our house prices are in for a smashing.
The only problem for the prime minister who promised evidence-based policy making is that there’s no evidence to support his claim. Even those who agree there might be some reduction in house prices, say the impacts would be one-off and small.
And the property industry – which hates Labor’s changes – has modelling that says removing negative gearing could actually push house prices up and that the exact impact is hard to know. Either way, no smashing.
Except in the House of Representatives.
“They want the price of your home to go down, that is their objective and if they win the election they will succeed in smashing home values ... vote Labor and be poorer. Vote Labor and see your house price go down,” Turnbull said in a hyperbolic question time attack almost worthy of the $100 lamb roast.
“Every single home owner in every single electorate represented in this House will be poorer if the Labor party is elected to government,” he claimed.
Labor says its policy would improve housing affordability over time, so presumably it believes its policy will cause house prices to be somewhat lower than they would have been without the change. It has released some analysis to back that contention, but no detailed quantification.
So here we are, back in the throes of a full-voiced evidence-free “he said, she said” fight. Feels like we’ve never been away. Still, let’s look at the evidence that does exist.
The closest thing to a quantification comes in the Grattan Institute’s submission to a Senate inquiry on tax deductions, which finds that limiting negative gearing could have a one-off impact on house prices of between 1% and 2%. Whether that translates into a slightly slower increase in prices than would otherwise have been the case or a small absolute price reduction depends on the property market in a particular area when the change comes in.
Curiously, actual modelling conducted by the Housing Industry Association suggests that limiting negative gearing could actually cause house prices to go up. That contradicts both Turnbull’s “house prices smashed” argument and Labor’s housing affordability claims.
Housing would become “more expensive”, the modelling report, by Independent Economics, said.
“Under current policy settings, discounting residential negative gearing in isolation is a retrograde step for tax reform, in terms of both efficiency and equity. By adding to the existing high tax burden in the housing market, it would reduce Australian living standards. By reducing the supply of housing, it would erode housing affordability for both renters and owner-occupiers,” it found.
And the Property Council – which has already started a campaign against Labor’s changes – said it didn’t know what the impact would be.
“We haven’t made any claims about the impact of their policy on residential house prices ... We haven’t undertaken any modelling on the impact of the opposition’s proposed changes to negative gearing and capital gains tax on house prices – in fact, we would like to see the opposition’s modelling,” said the council’s chief executive, Ken Morrison.
An Acil-Allen Consulting report prepared for the council found it was very difficult to know the impact of winding back capital gains tax discounts and negative gearing but also suggested prices could rise.
“Removing negative gearing or the CGT discount altogether for property will dampen investment, diminish rental supply and make it more likely that in the short to medium-term rents and property prices will increase,” the report said.
But it warned “it is not sound analysis to simply consider the effects of taxation arrangements on house prices. The cost of housing is shaped by a range of factors influencing demand and supply and hence it is hard to analyse the housing market in isolation from other markets and without considering the local, national and international interconnections. Furthermore, the evidence in this report shows that quantifying the effects of negative gearing on housing prices is a difficult task that would require modelling of complex investors’ capital movements and secondary behavioural impacts as well as their effects on the macroeconomy.
“While negative gearing arrangements are unlikely to singlehandedly change the fundamentals of housing demand and supply, they do influence investment decisions (including the decision to invest in housing and the rental prices charged for an investment property). Given the complex interaction of factors affecting supply and demand for housing, the outcomes of significant changes to negative gearing on the housing market are uncertain.”
A report by the progressive McKell Institute, which Labor drew upon when developing its policy found it was “unlikely that the changes to negative gearing proposed in this report would have a material effect on prices in the near term”.
“Over time it is expected that these reforms would improve housing affordability. As other reports, including the Henry Review, have noted tax settings play a relatively minor role in the price of housing. Other factors such as market fundamentals, zoning and building regulations and interest rates have a more material impact on house prices than tax settings.”
Presumably, the parliamentary budget office also made some assumptions about the impact of the policy when it costed it for Labor, but Labor has not released those detailed costings.
No evidence then, and certainly nothing to suggest our house prices are in for a smashing.
No comments:
Post a Comment