How Labor’s plans to revamp negative gearing could put a floor on house prices and lower rents

How Labor’s plans to revamp negative gearing could put a floor on house prices and lower rents

  • A key attack line from the Coalition on Labor’s plans to change the rules on negative gearing is that they will push up rents and increase downwards pressure on house prices.
  • But they may have the opposite effect. First-time buyers entering the market as prices fall could provide a new demand base to stem price declines. They would vacate rental properties, which would increase rental supply and drive down rental prices.
  • There are a range of issues at play and any scare campaign is misguided.

The economic policy debate over Labor’s plans to overhaul the negative gearing rules is hotting up.

It is an important debate on a policy change that will have implications for the housing market, particularly for first home buyer and investor demand.

The government is claiming that the negative gearing change will “take a sledgehammer”, “smash” and “punish” everyone in Australia. Treasurer Josh Frydenberg says that under Labor, “your home will be worth less and renters will pay more.”

It is a frightening scenario for property obsessed Australians with the value of all dwellings in Australia estimated to be around $7 trillion.

But is it true? What are the facts about the current housing cycle and how will Labor’s plans to revamp negative gearing impact the housing market?

Let’s first look at what Labor is pledging to do.

Stephen Koukoulas in Business Insider