Labor has unleashed a wrecking ball aimed squarely at the property market…
Suddenly it’s on like Donkey-Kong.
Labor has opened the broadside guns on property. Seems like every day we’re seeing another big policy announcement aimed at ‘housing affordability’.
And we’re not talking chump change anymore. Most affordability policies in recent memory have been as fulfilling and nutritious as licking an envelope.
But not this time. Labor has let loose a massive wrecking ball, and it’s heading straight for the property market.
1. Negative Gearing? Gone.
CRAASH!
2. Foreign Buying? Big fines for that.
SMAAASH!
3. SMSF leverage into property? Banned.
BAAZOINGO!
4. Vacant properties? Taxed!
BAM!
That’s a big-hitting policy line up. Any one on its own might be risky. But all of them together?
Flippin look out!
No government in recent memory, maybe in the history of the world, has ever taken such an aggressive affordability package to the people. No political party has come out gunning for property in such a Rambo-esque way.
Hold on to your hats folks.
But are things really as bad as they seem?
I’m not so sure.
Partly that’s because I’m not inclined to take politicians at face-value – EVER. So when Labor says they care about housing affordability, I tend to be a little sceptical.
I also can’t imagine that any political party would want to be in the driver’s seat if the property market crashed. Can you imagine? They’d get beaten over the head with it for decades.
And that’s particularly true for Labor. The general perception is that Labor is less strong on the economy. (I don’t think that’s necessarily true. I think they tend to be about equally useless.)
But presiding over a property market crash would certainly cement that perception for Labor. They’d struggle with it for decades.
And if the market did tank, I don’t think “But we fixed affordability for you. You should be thanking us!” is really going to fly with the electorate.
(Voters tend to be ungrateful like that.)
So there’s really nothing to be gained by being the party that brought down the housing market. Nothing at all.
So my assumption would be that Labor is looking for something that sounds big and impressive, while carefully avoiding doing anything that might influence the market in a meaningful way. (You’ll be surprised how far this rule of thumb will get you in assessing political risk.)
I call it the Sounds Good, Mostly Useless hypothesis. Let’s test it out.
1. Vacant Property Tax
The Victorian government just introduced something like this, and Labor wants to take it national.
The trouble with this is how you measure it. Some people have used water-usage to identify empty homes – but if the government tried that, it’d be pretty easy to game – just set a timer on the tap in the kitchen.
The Victorian system is self-reporting. (Good luck with that!)
It also sounds like the taxes are pretty small change. I’ve heard someone say that to a Chinese buyer, a new apartment is worth 20% more than a “used” one. So unless you’re talking about something that gives 20% a nudge (they’re not), I don’t see it moving the dial all that much.
Assessment: Sounds good, mostly useless.
2. More Fines for Foreign Buyers
Labor wants to double the screening fees on foreign investment and double the fines imposed on foreign investors who illegally purchase residential property.
The fees themselves are pretty small, so doubling a piffle is a pifflepiffle. Just a cost of doing business.
Doubling the fines is also a good idea, but Australia’s enforcement of the rules is pretty piss-weak, even after we beefed up the regime a year or so ago.
Look at the numbers. Since the new regime kicked in, the ATO has issued 388 fines worth more than $2m. That sounds impressive, until you realise it’s only about $5,000 on average.
Again, for foreign investors, it’s just a small cost of doing business.
Assessment: Sounds good, mostly useless.
3. Ban on SMSF leverage
Like a lot of Labor’s policies, this one has good intellectual cover, and one was on the key recommendations of the Murray Inquiry into the financial sector a few years ago.
SMSF leverage into property has been growing rapidly since it started in the latter years of the Howard government, and SMSFs looked set to become a major player in the market.
But it’s been growing rapidly from zero, and hasn’t had time to get all that far.
In my world, I know a lot of people using SMSFs to buy property, so it’s easy to forget that SMSF buying is still tiny – just 0.18% of the market. Getting rid of it is hardly going to move mountains.
This is still a pretty serious move, but it’s more about removing a source of future demand, rather than existing demand.
Assessment: Sounds good, mostly useless.
4. Ban on Negative Gearing
This is also a pretty radical reshaping of the market, but the thing to remember is that the change is grand-fathered. That is, if you had a negatively geared property before Labor brings their changes in, you get to keep negatively gearing it and claiming your deductions.
So again, this is about shaping future demand, rather than the market today. And even in theory, it’s not clear where the adjustment will be made. It could be in the relationship between rents and prices, it could be in the way people structure their finance (most people who negatively gear are wealthy enough to get creative with their financing).
The market will evolve, but it is certainly not clear to me that it’s going to have a big, or even noticeable impact on prices in the short term.
Assessment: Sounds good, mostly useless.
So look, while it all might sound a bit scary, I think most of Labor’s policy is in line with the Sounds Good, Mostly Useless theory of political science.
And that’s not an accident. You can be certain that Labor is being very careful about tipping the apple-cart, while very carefully choosing messaging that maximises voter-impact.
That’s politics for you.
But from where I sit, I don’t see any skies falling in.
What do you think? Mostly useless?