Up or down? LNP muddled over negative gearing effect

PRIME Minister Malcolm Turnbull has declared there will be no investors in Australia's residential property market if Labor is elected on its platform to reform negative gearing.

Mr Turnbull made the claim yesterday after insisting the day before that Labor's proposed changes would "smash house prices" and affect the "biggest asset of every Australian who owns a house".

However, Assistant Treasurer Kelly O'Dwyer told morning television yesterday that housing prices would rise under the Opposition's proposal.

After Mr Turnbull was asked about Ms O'Dwyer's comments, she later released a statement clarifying that she meant prices would rise only for "new homes".

Labor has proposed keeping negative gearing only for new homes from 2017.

It says current investments will not be affected.

Opposition Leader Bill Shorten attacked the Coalition's internal inconsistencies again in Question Time.

Mr Turnbull declared the policy meant no one would invest in residential property.

However, submissions to a 2014 Senate inquiry on affordable housing and a current Senate inquiry into tax deductions indicate any impact would be temporary and small.

In a submission to the affordable housing inquiry, market analysts BIS Shrapnel wrote that all levels of government needed to focus on "policy promoting supply as opposed to promoting demand".

While the BIS Shrapnel submission does not explicitly mention negative gearing, several reputable economists, including Saul Eslake, have backed limiting or abolishing negative gearing because it drives investor demand for existing housing, rather than driving new supply.


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