The federal election will likely take place on either 11 or 18 May, and housing policy is expected to be a key battleground for the major parties.
One of the fiercest debates will revolve around negative gearing. The Liberal Party wants to keep the policy as it is, while Labor wants to limit it to newly constructed properties and properties that are already benefitting from the tax break. Expert opinion is mixed.
For every analyst who believes that the policy needs to be scrapped, in order to make housing more affordable, there are two more who argue that house prices have already dropped enough. And then, of course, there are those who believe it’s little more than a storm in a teacup.
Here’s how the federal election will affect renters.
Negative gearing is a policy that allows investors to offset any losses they make on an investment property against their taxable income. At first glance, it might not look like something that’s important to renters. But dig a little deeper and you’ll find that there’s a clear link between the policy and how much renters are asked to pay for their homes.
Under the Morrison government, the policy allows investors to offset losses made on any investment properties – old or new – against their taxable income. Its supporters argue that this attracts investors to the market – particularly mum-and-dad investors who would otherwise be unable to afford an investment property – and boosts the supply of rental housing, which, in turn, keeps a lid on rent.
realestate.com.au Chief Economist Nerida Conisbee agrees and argues that Labor’s policy, unlike the Liberal Party’s, would therefore lead to an increase in rent.
“Almost all rental housing in Australia is owned by mum-and-dad investors and many rely heavily on negative gearing to make the investment worthwhile,” she said.
“If fewer buy, then there will be less rental housing and, unless the number of renters suddenly drops dramatically, rents will rise.”
Treasurer Josh Frydenberg subscribes to a similar point of view and has repeatedly attacked Labor’s policy in newspaper op-eds, TV interviews and speeches.
The way he sees it, Labor’s policy will lead to a reduction in the number of properties available for rent, at a time when tighter lending conditions have already led to such a reduction. The result, he argues, will be a significant increase in rent.
Grattan Institute research fellow Brendan Coates, however, believes that the impact of negative gearing has long been overstated. He argues that Labor’s policy wouldn’t have much of an impact on the property market, because the tax breaks simply aren’t “worth enough in the context of the $7 trillion housing market”.
“And the claim consistently being made that the policy will have a big impact on rent – that’s getting the argument the wrong way around. Rent sets prices; prices don’t set rent,” he said.
Either way, if Labor were to win the election, they would only have six weeks to introduce the changes before the start of the new financial year – and would need the support of four of the 10 crossbenchers to pass the changes.
This means that the changes to negative gearing wouldn’t likely come into effect until July 2020.
Labor’s affordable housing plan
Labor’s other major policy is its affordable housing plan, which will offer 15-year subsidies of $8,500 a year to investors who build new houses and lease them out for 20 % below market rent.
The party plans to spend $100m on the policy during its first term, during which time it would build 20,000 new houses, and $6.6bn over the decade to 2028-2029, during which time it would build a total of 250,000 new houses.
The policy is essentially an updated version of Kevin Rudd’s National Rental Affordability Scheme, which struggled to attract investors, and fell well short of its target of building 50,000 affordable homes in four years, instead building 37,000 in ten.
AMP chief economist Shane Oliver believes that Bill Shorten’s updated policy will run into similar problems.
“I think investors are wary about offering such low rents – perhaps worried that the people who take them up may not look after the property. I think they’d rather stick with market forces, rather than take the subsidy,” he said.
Coates also said that the policy had faults. He argued that, while the subsidies would likely alleviate rental stress for some low-income owners, it was expensive and inefficient.
First, he said “it’s hard to tease out what would have been built anyway versus what will be built because of the subsidy”; second, that the numbers didn’t quite stack up.
“Think of it this way. The median weekly rent in Australia is $462 a week, which is just over $24,000 a year. So a 20% rental discount would only cost you $4800, and Labor is offering $8,500 – so where does all the rest go? It goes into the pocket of the landlord,” he said.
“A much better way to [reduce rental stress for low-income earners] would be to boost public housing for people who are really at risk of long-term homelessness, and to offer greater rent assistance for everyone else.”