Sorry, property investors and the Labor Party don't mix.
I’ve held out on weighing into the negative gearing debate so far. But now I’ve finally settled on my position.
Labor can suck a fart.
How did I come to such a rounded and well-reasoned position? Like most “analysts”, I had a coffee and did some big-picture dreaming.
I’ve seen a lot of numbers doing the rounds. Aussie John reckons house prices will fall by 10-20% if Labor’s policy gets up. Bill Moss, the former head of Maquarie Group’s Property Division reckons they would fall 30%, maybe more.
Do I have any takers on 30%?
Let me throw my hat in the ring. I reckon house prices will fall 120% if Labor gets its way. People will be literally paying you to take houses off their hands.
It will be an economic Armageddon.
120% might sound ridiculous, but it’s got as much credibility as 30+%.
The truth is that anyone trying to put a number on these things is dreaming. The property market is just too complex. You can’t isolate what effect any one policy measure will have.
House prices are driven by a whole range of things – it depends on the supply and demand balance, it depends on what foreign buyers are doing, it depends on what’s going on in the economy.
Trying to pick out the effect of a single policy change like negative gearing reform is like trying to find your farts in the synoptic charts on the weather channel.
(Georgia, put that one in the short-list for Jon’s Dazzling Analogy of the Year.)
You just can’t look at these things in isolation.
But that is exactly what Labor wants to do.
They’ve simplified the problem and dumbed-down the prescription.
Negative Gearing must be having some impact on the market. Sure. But I can’t say that I’m totally sure of what it is. Maybe it pushes prices up, maybe it increases supply and pushes prices down. Maybe it does both.
But if you look at the media frenzy that’s developing around this debate, you would think that the sole reason why young people have sell organs to get into the housing market is because their parents have used negative gearing to drive prices out of their reach.
I doubt very much that this is true.
You want to look at why prices are where they are, look at supply and demand. As I’ve said a number of times, we haven’t been building enough houses, mostly because we’re not bringing enough land to market.
So if you want to complain about high prices, have a look at the supply bottle-necks we’ve built into the system.
But Labor’s not going there. No one wants to go there. Supply reform is hard. It involves coordinating the states and the councils. It involves finding ways to work with the Not-In-My-Backyard brigades. It involves taking on the deep-pocket developers and their land banks.
Total nightmare.
And so we get a bit of tinkering with demand. That’s all we ever get. Half-arsed attempts to address affordability like the First Home Buyer Schemes. And all any negative gearing reform will do is have a marginal impact on demand. Maybe it even reduces supply, making things worse, but I don’t expect that effect is huge either.
So my bet is that who ever wins this election, and whatever happens to negative gearing, in three years time people will still be complaining about how expensive houses are and how hard it is to buy a house.
And in that sense, Labor’s policy shows vision – a vision for how to position themselves as the battler’s champion going-forward.
This issue isn’t going away. Excessively high house prices are a problem. It’s hard to run a business when affordable labour can’t afford to live near your office or factory. And there are legitimate questions of equity, when some sections are locked out of home-ownership. The young folks of Australia are peeved now, and their parents soon will be too, when they realise that they need to give their kids a good chunk of their retirement savings to help them get a place of their own.
Housing affordability is a big issue, and its only getting bigger. As such, it’s a vote winner.
So this is Labor’s play. Cry crocodile tears over affordability, paint negative gearing as the nasty villain, and then champion negative gearing reform as its saviour (while studiously avoiding saying or doing anything at all about supply.)
Bulls#!t.
Its cheap and lazy politics.
The danger though is that the property market is complex. And you have negative gearing reform (and all the fear that people are whipping up) coming into effect at the same time as banking credit is getting tighter, Chinese buyers are drying up, and the economy struggles with transition.
It could be the straw that breaks the camels back.
Fear can have a tendency to snowball. House prices can get a run on if they start to slip.
(Though if we do see house prices fall, even 5-10%, I’ll be buying up big.)
I’ll back the property market to weather the storm over the medium term, but in the short run, a lot of ordinary people could get burnt.
And so this is the basis of my argument. If you care about affordability, look at supply. If you’re worried about it as a tax dodge for the well-heeled, have a look at the CGT.
But leave negative gearing alone. It’s not the demon you make it out to be, and now is not the right time to be introducing fear and uncertainty in to the market.
Especially when the only purpose is to score a few political points.
I rest my case.
If you vote Labor and you're a property investor, you're a bloody idiot.
What do you reckon?