What impact will Labor’s changes to negative gearing have on buyers?

Whether you are actively looking to purchase a home or are just browsing, chances are you have heard the heated public debate over federal Labor's cataclysmic proposed changes to negative gearing. In a nutshell, the Australian Labor Party (ALP) wants to limit negative gearing to landlords who invest in new-build rental properties.

Negative gearing allows property investors to write off any losses incurred on a rental property against their taxable income at the end of each financial year. It is an effective wealth-building strategy used by plenty of everyday property investors such as nurses and primary school teachers to build wealth.

The Real Estate Institute of Australia (REIA) recently warned national house prices would fall significantly in the event Labor wins the 2019 federal election and implements the controversial policy. REIA President Adrian Kelly, citing a new report conducted by SQM Research, predicted property prices would drop between 5 and 12% on average nationally across the capital cities from 2020 to 2022 under the ALP’s proposal.

As a prospective buyer, it might be tempting to dismiss the vigorous political debate over whether or not negative gearing should be abolished. You may even see the change as a good thing if it means property prices are set to drop. But economists warn the effects of the policy, which would be introduced by a newly elected Labor government on 1 January 2020, would place the entire Australian economy in jeopardy, including the job prospects of all Australians – and having a job is critical to owning home and paying off a mortgage.  

Construction activity is projected to fall by up to 30 percent from current levels, leading to higher unemployment in the all-important real estate and construction sectors. State governments are also forecast to miss out on an estimated $2.3 billion in stamp duty revenue crucial for funding schools, hospitals, and roads. Furthermore, the nest eggs of 18 million Australians – including non-property owners – would decrease due to the adverse effect of falling property prices on superannuation funds.

If you would like to discuss the campaign with us please call (02) 9258 5400 (during business hours) or email [email protected]. You can also contact REIA on (02) 6282 4277.