House prices will still grow under Labor’s negative gearing plan, group claims

Adam Smith 30 May 2016

house graph vectorA new report has claimed house price growth would continue under the Labor Party’s plans to restrict negative gearing.

Labor-aligned think tank The McKell Institute has released a report that claims Labor’s plan would not result in the housing price crash predicted by the Federal government and housing lobbies. Housing pundits such as Aussie Home Loans’ John Symond and real estate mogul John McGrath have claimed the plan to restrict negative gearing to newly-constructed properties would result in precipitous declines in house prices, but The McKell Institute report has claimed house price growth would continue, albeit at a slightly moderated pace.

“This report finds that under current arrangement, house prices across Australia’s eight capital cities are forecast to grow at 3.09% per year, while under the proposed changes, house prices are also forecast to grow, albeit at a more modest 2.60% per year across the same eight cities,” the report said.

What are the proposed changes to negative gearing?

The report claimed Labor’s plan to reduce the capital gains tax discount from 50% to 25% would moderate future house price growth, but grandfathering the changes to the CGT discount “will ensure a smooth transition”. The think tank estimated the impact of the change to be a 0.5% reduction in house price growth per year.

Likewise, the report claimed the Opposition’s plan to abolish negative gearing for existing homes would see house prices grow 0.49% less per annum than they would otherwise.

“The long term effect will be that this policy will moderate demand for existing homes and lift demand for new homes. The increased new supply will ensure rents remain stable,” the report claimed.

What would happen if negative gearing got axed?

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