Hi Members,
See the below update from Ben Kingsley, Chair of PICA:
I'm sharing an important historical record of rents on 3 bedroom Houses for each capital city when Labor decided to ban negative gearing in 1985 - 87 (a 2 year period and then what happened in the next 2 year period).
You will note that rents increased in every city, some more than others, that's why I went to the trouble of including vacancy rates to educate you some more.
For those of you who are not well informed in this area - vacancy rates are a measure of rental demand and supply.
If the vacancy rates are tight I.e around the 1% figure you generally see rents increases (spikes) in rent above long term trend rates.
This outcome is consistent in the charts of each of the cities included in this post.
Furthermore when you investigate the supply side of the equation during this period you learn that construction during this period was down 27%, impacting heavily on the supply side and investor demand dried up.
This is why Mr Paul Keating (who I might add was one of the great political figures of this generation) decided to reverse his original decision. This reasoning was, if this trend were to continue, the stocks of rental accommodation would continue to deteriorate pushing rents even higher in those cities where vacancy rates were around 1% and as vacancy rates in the other capital cities followed suit their vacancy rate tightening would also trigger spikes in rent on these cities.
It is the view of almost every property expert in the country that Labor's proposed re-introduction of negative gearing changes (in their current proposed form) are likely to have the same impact.
How can this happen?
In very simple terms, investor demand for property will continue to decline, this will see property prices decline for every property owner and reduce the stock of rental property over time, causing rents to rise as supply tightens. A repeat if you like of what occurred last time they tried it.
The policy is not well designed and this is why I am calling on Labor to drop it.
Ben Kingsley - Chair of PICA
Feel free to share this history lesson on the potential consequences of this poorly thought through policy.
Data Source: REIA, PICA
Join the Property Investors Council of Australia (PICA) today and help us education you and be your voice to governments and regulators. www.pica.asn.au/join
