The change will, quite plainly, take away one segment of demand in what has been an overheated part of the established housing market. Over time, this will allow other segments – first home buyers and those looking to upgrade – to step into the void and buy established dwellings without the intense competition from investors.
Over time, this is likely to help reverse the fall in home ownership rates that has been evident since the early 1990s.
What is also important to note is that Labor’s proposed negative gearing rules will mean a net improvement to the Federal budget by $37 billion over the next decade. That is $37 billion which can be used to either reduce debt, partially fund health and education and other important government services.
It is difficult to see why there would be any objection to the proposed rule changes, other than perhaps from real estate agents in well established suburbs who may lose a little business as investors move their attention to new dwellings.
For political reasons, the Coalition is set to maintain its fear campaign against the rules, even though Treasury and most other credible forecasters have estimated the impact on house prices from the law change is negligible.
Debate is also likely to be muddied by the fact that house prices are now falling, especially in Sydney where prices have dropped over 3 per cent in the last four months and Perth prices are down over 10 per cent over the past three years. It is important to note that this is happening on current policies, with negative gearing rules still prevailing. This fact alone should be a hammer-blow to the fear campaign.