Do our pollies have a vested interest in keeping the property bubble inflating?
In the last month or so, we’ve seen a big surge in news articles and commentary about Sydney and Melbourne’s housing bubbles. But to the consternation of many people, there has been a reluctance by our politicians to introduce meaningful reforms. Could the reason be that they are among the nation’s most aggressive property investors?
APRA, ASIC, RBA and Deloitte to name just a few have all been publicly warning about the levels of property prices and the level of indebtedness this has led to and the implications for risk regarding several aspects of the economy and the society, like banking system stability, social mobility and overall quality of life.
There has also been an increased focus on this in the political debate with a “public discussion” between the leading parts of the ruling Coalition regarding what the most appropriate measures are to tackle the issue in the lead-up to the upcoming budget.
We do not propose that we know the answers to what the most appropriate measures are but note with interest the data prepared by the ABC showing that the people who are tasked with deciding the most appropriate measures are not fully representative of the population as a whole.
Some interesting facts from the ABC article from the 20th April which you can read in full here are:
- Politicians in parliament are much bigger investors in real estate than the general population
- 96% of the members of parliament own a property vs. 48% for the population as a whole
- 50% of the members of parliament own an investment property vs. 10% of the populations as a whole
- Politicians own (on average) multiple properties each.
- The average politician owns 2.4 properties
- The average Coalition politician owns 2.7 properties each, with roughly half of these being investment properties
- The average Labour politician owns 2.0 properties each, with 37% of these being investment properties
Now, we are aware that there are reasons for politicians having a different investment profile than the general population (e.g. it is a reasonably well paid job, owning shares in individual companies opens questions about preferential treatment etc.). We cannot though help ourselves to question if the reluctance to adjust some of the more bizarre (to this author at least) aspects of the Australian taxation system partly responsible for the investment-led rise in property prices we are currently seeing is at least influenced by vested interest amongst the policymakers.
In particular, the reluctance to adjust negative gearing rules seems like a policy point that could very well be influenced by the personal vested interest of politicians with a big personal exposure to investment property.
Investment in domestic real estate is, as Adam Smith noted in Wealth of Nations (quote below), a non-productive investment that does not contribute to the overall GDP of a country and hence this seems like an area prime for tax reform with the dual benefits of increasing housing affordability and to channel investments into productive assets.
“A dwelling house, as such, contributes nothing to the revenue of its inhabitant … if it is to be let to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue… though a house, therefore, may yield a revenue to its proprietor … it cannot yield any to the public, nor serve in the function of a capital and the revenue of the whole body of the people can never in the smallest degree be increased by it.”