First home buyers urge Bill Shorten to reconsider negative gearing plan
It’s a policy Labor promised would make housing affordable for younger generations — but not all the Millennials trying to claw their way into the property market are a fan of the ALP’s proposed negative gearing reforms.
Sisters Brooke and Jade Miller are fresh off buying their first home in the Penrith area and claim cuts to negative gearing would be “devastating”.
The pair are planning to put their home up for rent next year to help take the sting off their repayments for a while, but the removal of the concession would make a significant dent in their finances.
“We work hard. We were hoping negative gearing would give us a leg up into the market,” older sister Brooke said.
The 25-year-old added that buying their home was a challenge. She was only able to afford the purchase by working two jobs, one in a High School office and the other at ANZ stadium on the weekends.
The sisters also had to get help from their parents who went guarantor on the loan for their $510,000 house in Cambridge Park.
The pair’s selling agent Matthew Hall of Mooney Real Estate said it was common for property buyers to need help to get into the market. “Gone are the days when most people could buy a property on their own.”
MORE: What the budget offered home buyers
Homes offered with $265K discounts
The older Ms Miller said she wished the ALP would reconsider it’s negative gearing position if it won the election. It may be wishful thinking.
Labor leader Bill Shorten announced yesterday he will not reassess his plan to restrict negative gearing tax concessions to only purchasers of new properties and dismissed criticisms of the policy as “wrong”.
He also claimed the reforms would ensure more housing would be built to keep prices from spiralling out of control.
His comments came as budget documents released Tuesday revealed declining investment in the housing sector could detract from real GDP growth.
The risks would be exacerbated if property prices were to fall much further than they already have, the budget said.
Prices have already fallen by more than 10 per cent across Melbourne and Sydney in the year to March. All of the mainland capitals with the exception of Adelaide also recorded falls in prices over the period.
Property analysts have since slammed the Labor leader’s comments, claiming his views showed a lack of understanding of the housing market.
“Bill is dreaming if he thinks this won’t hit the market badly,” said SQM Research director Louis Christopher.
He added that the reforms were counterintuitive and would backfire.
The policy would stifle housing demand and push prices down by about 7-16 per cent in Sydney and Melbourne over the first two years it was implemented, SQM modelling showed.
It would also push prices down in Canberra by up 10 per cent and Brisbane prices by up to 7 per cent. Perth prices would also drop by up to 4 per cent.
Price falls of this magnitude would discourage investors from buying new properties, even if they could still use negative gearing, because the risk of holding a mortgage worth more than the value of the home was too high, Mr Christopher said
The majority of new properties remain units sold off the plan, where the buyers agree to pay a price at current market value but are only required to settle on the payment when the property is built, usually a few years later.
“The value of the property could be less than the mortgage … no investor will want to take that risk,” Mr Christopher said.
With fewer investors purchasing new properties, developers would have no choice but to pull their housing projects.
This would mean Labor’s policy would drive down new home building, not encourage it, according to Housing Industry Association economist Tim Reardon.
He said introducing the reforms in the current market would be risky and suggested any potential Labor government rethink its commitment to implement them on January 1.
“Labor developed this policy at a different time in the market. It may have made more sense during the boom, but things have changed,” he said.
Mr Shorten was also criticised for claiming current negative gearing tax breaks mostly benefit investors with a “fifth or sixth” home, when the majority of Australian property investors own just one rental.
The Labor leader said in media appearances he would back first homebuyers over investors and the changes to negative gearing would allow for more money to be put back into schools and hospitals.
The Miller sisters said they didn’t agree with the assumption that those claiming negative gearing concessions didn’t need the help. “We had to put a lot of effort into saving because you have to build a really big deposit to be able to buy property these days. It took us quite a few years.
The sisters were planning to live in their property for the first six months to qualify for the NSW government first homebuyer concessions. The concessions offer an exemption on stamp duty payments for first home buyers properties prices under $650,000.
“You’ve got to do whatever it takes to make it work,” Brooke said.