Negative Gearing Debate – Simon Pressley

Negative Gearing Debate – Simon Pressley

 

In today’s show Simon Pressley, from Propertyology, adds his voice to the Negative Gearing debate.

 

Transcript:

Kevin:  Well, everybody’s talking about it, and to add his voice to the negative gearing debate, I’m joined by Simon Pressley from Propertyology.

Good day, Simon.

Simon:  Good day, Kevin. Nice to talk to you again.

Kevin:  Yeah, everyone is talking about this, aren’t they? Negative gearing. Let’s firstly talk about how negatively gearing affects all Australians – or doesn’t affect them.

Simon:  Look, it’s a tax policy, but it’s very far-reaching. It’s more than the investor with some benefit from negative gearing; it directly relates to housing supply.

To use some official statistics, investors actually provide 27.1% of all properties to the public, and most of those investors are everyday Australians like you and I. Scrapping negative gearing is not just about the tax impact on individual investors; it’s about where is the supply of all that rental accommodation that we’re always going to need?

It affects the construction industry. Most of the brand new product that the construction industry sells, whether it’s a foreign investor or an Australian-based investor, relies on a certain number of investors buying that product. Of course, if there’s going to be less buyers, there’s going to be less built, which then will mean construction jobs lost.

The other area – and I think most important area, Kevin – is our welfare system. It’s not that long ago that a former Treasurer by the name of Joe Hockey said that our welfare bill is growing by $400 million per day. The biggest component of our welfare bill is, of course, the age pension. To do something to reduce Australia’s taxpayer money going into age pensions, we probably need to encourage people to invest more, I would suggest.

Kevin:  Yes. Simon, you’re on record as saying that you don’t really care whether negative gearing is in or out. Why is that?

Simon:  That would probably surprise a lot of people coming from someone who is a professional investor and who has a business where all we do is help investors.

I don’t think the policy should be tinkered with at all, mind you, but why I’m not worried about it in regards to the impact I think it will have on values of properties in my portfolio or my rental returns or anything like that is it’s impossible to say, “It will go this way, up or down,” because there’s a lot more than tax policies that affect property markets, of course.

But it’s more likely that there could actually be a boom created by this. There could be a period of time where people go, “I have to quickly by those established properties before they change the rules,” and that could create a tsunami of buyers flocking to a market.

Certainly, I feel very confident that rents will push up. It’s basic commonsense. If anything is done to discourage investors, then there’s going to be less stock for the rental pool, so that has to go one way – rents up.

Kevin:  That’s right. It is going to impact supply; there’s no question of that. It’s all about supply and demand. Is, therefore, scrapping negative gearing not necessarily a good thing for the country? What are some of the unintended consequences?

Simon:  Well, the unintended consequences are those things that I referred to earlier. I don’t think these policies have been thought through. Greater reliance on tax payer dollars going towards welfare. We’ve got millions of people exiting the workforce. The baby boomer generation over the next 15 years are exiting the workforce.

Unfortunately, for those people, there’s probably not much time left in their working life to do much about it, but the generations prior to that have got plenty of time.

So if we’re taking away incentives for people to take to invest and take control of their financial future, then when they reach the equivalent of the baby boomer age, there’s going to be more of those people on age pensions. That will be an unintended consequence. What you might take away from tax refunds today, you’re going to be finding extra money to fund pensions in years to come.

It’s not going to be a good thing for the construction industry – anyone who is a developer. The Property Council have come out loud and strong saying, “Don’t touch this. You’re going to affect our jobs,” and this country needs more jobs, not less jobs.

Kevin:  Simon, let me play devil’s advocate for a moment. In the event that they were to scrap negative gearing, that would logically take a lot of the investors out of the market. Doesn’t that then lower the competition for first-home buyers, and therefore, lower the prices?

Simon:  I don’t actually subscribe that that’s what will happen. I think there’s always going to be a percentage of the population who do not want to one day at age 60 or 65 fund their lifestyle off of whatever they can do with a government-funded pension. There’s always going to be the motivated Australian who says, “I want to do better than that,” and of course, the only way to do that is to invest, so they’re always going to do that.

Most investors don’t actually invest with the primary reason being a tax incentive; they invest with the “I don’t like what my life will look like in 15, 20 years’ time.” If they’re going to do that and there’s a legal tax benefit they can claim along the way, they will do it. But that’s the order that investors make decisions, so we’re always going to invest.

On the supply side of things, if they scrap negative gearing, I think it’s going to diminish supply. Even if there was lower buyer activity, there definitely will be less supply, and those two dynamics, I think, will keep forcing prices up.

Kevin:  Always good talking to you. Simon Pressley from Propertyology. Thanks for your time, mate.

Simon:  Thanks, Kevin.

Kevin Turner
kevin@realestatetalk.com.au
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