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Ben Kingsley Blog post by Ben Kingsley

Labor’s Negative Gearing Policy Blunders (Part 1)

This video is part of our Negative Gearing video series.

You’re currently watching Video 2.
Video 1: What is Negative Gearing and Why It’s NOT a Strategy? – Watch here
Video 3: Labor’s Negative Gearing Policy Blunders (Part 2) – Watch here


Hi Ben Kingsley here. In this negative gearing series, I’m going to talk to you in two parts about Labour’s huge blunder when it comes to their negative gearing policy. Let me explain to you a couple of things here we need to understand about the marketplace.

The property market is made up of two main buyers. We have the owner-occupier and they represent about 70% of the marketplace and then we’ve got the investor and the investor traditionally represents about 30% of the marketplace.

Now, why is that important to understand?

Well, we’ve got to understand the supply and demand story here but we also need to understand exactly what they buy. What did the 70% buy and what – the 30% buy because this is where the huge blunder has occurred in regards to the policy design. Let’s talk about this.

So in terms of the new buyers, the owner occupiers versus the investor. The owner occupiers buy about 15% new. That means the properties are newly built or house and land or in the middle of the construction process. That’s about 15%. That obviously means that 85% would be existing property. That’s what they’re buying.

Now in terms of the investors… This is where the big problem is in regards to the modelling that all of Labor has done. The Parliamentary Budgeting Office, the Treasury and the Grattan Institute have got incredibly wrong. Now what we needed to understand is of that 30%, how are they broken down? Let’s take a look at that.

So we spin this out here and we say well in terms of the new property, what Labor was telling us, via the PBO, is that it was around sort of less than 10% was new. Which would mean that obviously, 90% would be existing. They called that a policy failure and they said no one’s buying new investment properties. We’re going to fix that with our policy because what they’re saying is, they’ll still keep negative gearing on brand new property but won’t allow it on existing property.

But wait! There’s a catch there.

Now the data from the industry suggest that if they had asked the industry and same with the Grattan Institute, if they had have done rigorous research they would have found out by asking the subject matter experts exactly what the mix is. It turns out that the mix looks more like this… The industry data is telling us that in terms of the new portion, that is around 45%. Which means the existing portion would be around 55%.

Now, why is that a big deal?

Well if you think about it, the modelling that Labor and the Grattan Institute did in terms of talking about how it’s going to have a minor effect on property prices and do nothing really around rent… Well, that’s where they got it wrong. Because in the modelling that Labor has used assumed that it was going to move from 7% new up to 22% new and that was going to provide an economic boost. They talked about creating around 23,000  to 25,000 new jobs. They talked about the economic benefit being around that sort of $32 – $35 billion in their forward estimates in revenue this policy would bring in because the market was going to shift from buying existing property to buying new property.

Problem is… We’re already buying 45% new.

If we’re moving to that 22%, actually meant that it’s half of what’s actually happening today. So are we going to get that building boost, that building boom that Labor has promised? The construction led boom of new jobs. No.

If the PBO and Labor are right, it’ll actually mean a contraction in the economy. It would actually mean we would move from almost half of what we’ve got today. That’s a problem and what has happened has meant that both the Labor party and the Grattan Institute have now had to step back from their positions. They’re now asking for that remodelling to be done and what could come of that is… that remodelling could show zero benefit in terms of changing negative gearing. If you think about it, it’s a pretty good call that it may not do anything because if we’re moving from a so-called mysterious fake number of 7% to 22%, how are you going to get that boost especially when it’s already 45% today?

That’s the first blunder that Labor talks about when it comes to their negative gearing policy. In the next video, I’m going to talk about the second part of their blunder in terms of buyer behaviour and what will happen to the buyer if they introduce this policy.

Thanks for watching.

This video is part of our Negative Gearing video series.

You’re currently watching Video 2.
Video 1: What is Negative Gearing and Why It’s NOT a Strategy? – Watch here
Video 3: Labor’s Negative Gearing Policy Blunders (Part 2) – Watch here

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