Labor’s housing affordability mess: profit for the few, pain for the many

Labor's two-pronged housing affordability package has them rowing the same boat in both directions, expending a lot of taxpayer dollars and going nowhere.

The first prong doubles the capital gains tax on all investments, to the second highest in the OECD, penalising real estate and share investors alike, and immediately decreasing the value of all retirement savings.

It then violates the principle that losses are deductible against expenses in the same entity, removing the ability of many investors to deduct current losses against current income.

Labor ludicrously claims these are affordability measures while claiming they won't reduce house prices.

In fact, in the medium term they will increase prices.

Short term they will decrease prices as investors desert the market, and this is already happening, most noticeably in Sydney and Melbourne.

Labor might have thought that owner-occupiers would pick up the slack, but there aren't enough with large enough deposits, so price falls have some way to go yet.

That leads to less activity, less development, tightening rental vacancies, higher rents, and then prices go up, leaving just a brief window of increased affordability.

So now we get prong number two. Labor has decided it needs to insulate the market against rent increases. It proposes to spend $6.6 billion over the next 10 years paying an $8,500 a year subsidy per dwelling to investors who will develop 250,000 for rent at 20 per cent less than the market rate to people on average to low wages.

Having decided that the problem with housing affordability is that there are too many investors who are being "subsidised" through negative gearing deductions, Labor has decided that the answer to housing affordability is more subsidised investors. Go figure.

Bill Shorten claims that the reduction in rent for the average tenant will be $4,784 per year, so the subsidy to the investor is $3,716, making up the total $8,500.

On the other side of the ledger, by abolishing the tax offset for negative gearing, Labor will gain $2,158.89 per annum from the average investor, on the average property, geared to the hilt.