The Property Council of Australia says that an academic paper prepared by Melbourne University, as part of an RBA workshop reaches some bizarre and questionable conclusions on the potential impacts of removing negative gearing.
Property Council of Australia Chief Executive Ken Morrison said any meaningful interrogation of the paper immediately raises serious questions as to the credibility of its findings, saying, “contributions to the policy debate need to be evidence-based,” and that the paper’s conclusions raise more questions than answers.
“Housing affordability in Australia is a serious issue deserving careful and considered policy analysis,” Mr Morrison said.
“The paper, which has not been endorsed by the RBA, concludes that removing negative gearing across the board would see house prices drop by only 1.7%, but this small decrease would somehow induce an 8% increase in home ownership.
“It finds that the supply of rental homes would crash, with a 30% decline in the proportion of homes being rented compared to owner-occupied, yet rents would only increase by 2.4%.
“These are inexplicable, highly unlikely conclusions not supported by evidence.
“The model used assumes all of the savings from abolishing negative gearing would be spent on welfare payments and transfers to renters and others negatively impacted – an unlikely scenario.
“However, it also says if this didn’t happen, 68% of households would be worse off from abolishing negative gearing.
“It does reinforce Treasury’s view that abolishing negative gearing would do almost nothing to house prices.
“This, in turn, begs the question, what is the point of a housing affordability policy that would do almost nothing to lower house prices?
“Conversely, we know that increasing housing supply will have a sustained and measurable impact on prices.”
As Reserve Bank Governor Philip Lowe has said:
“On the demand side, population growth in Australia – especially in our largest cities – picked up unexpectedly in the mid-2000s and it is only in the past couple of years that the rate of home building has responded. . . Put simply, the supply side simply did not keep pace with the stronger demand side. The result has been higher prices.”