Every debate needs a strawman – and in the one about housing affordability, negative gearing is the chosen target.

Tim Williams is the latest to position it so.

In his piece for The Fifth Estate (28 November) he praises NSW Planning Minister’s Rob Stokes for his contribution to the debate on negative gearing.

Except this. He didn’t mention the few bits of modelling done on the effects on house prices from the removal of negative gearing.

One was done by the McKell Institute where he serves as a Researcher, among his myriad roles. We think the modelling has flaws but it seeks to put a number on the benefits to house prices regardless.

The case for? It equals a 0.49 per cent cut.

That’s it. 0.49 per cent.

So before we laud the minister for his bravery, let’s put that in context.

Every time a NSW homebuyer enters the market, they pay a stamp duty bill that amounts to 4 or 5 per cent depending on price.

Stamp duty revenue has risen from $4 billion to $8 billion on the current government’s watch – and the average bill jumped from $21,000 to over $35,000. That’s a high hurdle

Infrastructure charges add as much again – and sometimes more – to house prices.

And the time, cost and red tape in the NSW planning system magnifies the effect more.

If the minister wanted to tackle any of these things within the remit of state governments that’d be truly brave. It would also make a truly substantial difference to housing costs.

There is no doubt Sydney went to sleep for a decade and is paying the price. We ran housing approvals and completions at half the rate of Melbourne at one point.

Both markets have negative gearing and both markets have the same interest rates; but the one difference is the continuity of land supply.

The consequence is that a block of land in Melbourne, in an area with a similar demographic profile and similar distance from the CBD, goes for half the price.

The convergence of pent up demand, a stronger economy and low interest rates means approvals have lifted – but barely to the point of meeting Sydney’s demand.

So to point to the tail end of that, and say negative gearing is the source of all woes, is flawed for several reasons.

But above all, it is flawed because it gives politicians the excuse they need to avoid real solutions that’ll move the needle on prices by more than 0.49 percent.

Glenn Byres is the Chief of Policy and Housing at Property Council.

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  1. The seeming polarisation of views, as evidenced here by the current commentary by Tim Williams and Glenn Byrnes, on what causes and what will resolve such a critical social and economic issue as housing affordability is disturbing, but also instructive. Housing / home affordability is the classic wicked problem – issues ‘highly resistant to resolution’ where there are ‘no quick fixes and simple solutions’ says the Australian Government’s own Public Service Commission in its useful report Tackling Wicked Problems. It is worthwhile considering what the report also says about how best to deal with them. They require:
    a reassessment of usual ways of working and problem solving
    a comprehensive focus, not partial or linear thinking
    innovation and flexibility in approach
    clearly understanding the psychology of behavioural responses to policy settings (particularly those to do with money and tax one could add!)
    the engagement of all parties in identifying solutions.

    On these criteria it would seem quite correct for Rob Stokes to call out the impact of negative gearing, as long as it is not promoted as the only cause. And it would seem wide of the mark for the Federal Treasurer for instance, perhaps reflecting his own earlier days at the Property Council, to simply suggest more supply as the ‘fix’. There is a whole raft of cause and effects, and all must be tackled. What happened to the Australian co-operative (not-for-profit) building society that provided affordable finance? Why can you walk around the higher-rise residential parts of central Sydney in the evening and see barely a light on? Who is buying these apartments, and does anyone live there?

    Why do we not also refer to the influence of the non-capital gains tax regime for the family home – which now seem to be turned over at increasing rates (in symmetry with the capital gains tax exemption period) and with all sorts of over-the-top value-adding renovations and re-builds and don’t care about how much neighbourly amenity you destroy along the way because you won’t be neighbours anyway. What is it about us as a society that has converted a social good (the long-term family home) into a move-on-quick wealth creation vehicle?

    The TFE event next week on housing seems opportune. It is being promoted as a collaborative brain-storm. It might be what is needed to reveal antidotes for this particular wicked problem.