Westpac chief economist Bill Evans has warned that a Labor win in 2019 will create major shifts in property investor sentiment as new tax policies are introduced.
Speaking at a Loan Market event in Sydney on 20 October, Mr Evans told mortgage brokers and real estate agents that as we head into 2018, people are going to start focusing on Labor’s tax policies.
“I’m not sure which way it will go. Investors may think, ‘Well, the negative gearing changes are going to be grandfathered so I better get in now,’” Mr Evans said. “You might see a surge in investors next year.
“But watch out what happens when you get a change of government. The whole thing might roll over, or people could become more cautious, worry about retrospective changes in the rules, and things will flatten out as we get closer and closer to that election and a change in the policy environment.”
The opinion polls show that Labor’s popularity has increased while that of the Coalition government has waned since last year’s election.
According to Newspoll, the Coalition had 42.1 per cent of the primary vote on 2 July 2016 and Labor had 34.7 per cent. By the end of September this year, the spread had narrowed considerably, with Labor ahead with 38 per cent and the Coalition trailing with 36 per cent.
“Once you get behind on those opinion polls, it’s pretty hard to catch up,” Mr Evans said. “John Howard was able to do it before 2007 because he had plenty of money to spend. That’s no longer the case. This government is pretty much broke.
“They feel like they have to get a surplus by 2020, 2021 to placate the ratings agencies, so they can’t really spend their way out of this hole they have found themselves in on popularity.”
Labor has said that it will reform negative gearing and the capital tax discount in what it describes as a policy designed to help put “the Australian dream of home ownership back within the reach of middle and working-class families.”
Negative gearing was one of the more heated discussion points of the 2016 election. Leading economist Saul Eslake said that he “applauds” Labor’s stance, particularly as negative gearing was one policy that former Treasurer Wayne Swan wouldn’t touch.
“There’s an enormous amount of political risk involved in anything that makes housing cheaper,” the economist said.
“So, what governments typically do, they dream up schemes that entail putting more cash in the hands of people who are seeking to buy property, like FHB grants or stamp duty concessions, but where does that money end up? It ends up in the pockets of vendors.”
Mr Eslake said that he has “no doubt” that one of the contributors to the decline in home ownership rates and the escalation of prices is the significant increase in the presence of investors in the market.
“You go back 25 years and investors and first home buyers each accounted for about 18 per cent of the lending for housing, with the other 64 per cent going to owners who were trading up to a bigger home or something like that.
“Roll forward to recent years and the share of housing finance going to first home buyers has fallen to less than 10 per cent while the share going to investors has risen to more than 45 per cent and in a couple of years exceeded 50 per cent.”
According to Mr Eslake, the proportion of taxpayers who make negative gearing claims has doubled over that period.
“And the reaction of people — of the present government, in particular — and the property industry is, ‘Oh, if you tamper with negative gearing, you will cause prices to crash’.
“Now, I don't think that’s true, of course, but nonetheless that’s a fear that politicians and decision makers run away from.”