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LABOR'S proposed changes to negative gearing are a ticking time-bomb to a housing shortage, according to economic forecaster BIS Shrapnel which warns that it's likely to hit more than just investors.
While the changes will take time to filter through, BIS Shrapnel argues that the tax-saving measure will push lower-income families into housing stress while also costing the economy around $19 billion a year.
"The housing shortage will grow," says the forecaster in the report. "The policy change will create a discouraged investor effect that will dampen investor demand for housing."
BIS Shrapnel says this will lead to a shortfall of 60,000 homes instead of a forecast 20,000 over the next 10 years.
While the report has sparked controversy in Labor ranks for directly contradicting the party's own economic modelling, BIS Shrapnel associate director Dr Kim Hawtrey has told Business News Australia that it was not framed with Labor's policy in its sights.
However, the research does closely align with Labor's plan to abolish negative gearing on existing homes and to grandfather the provisions to apply to properties bought after July 1 next year. The BIS Shrapnel resreach assumes the changes will take place on July 1 this year.
Hawtrey says he has not seen any of Labor's modelling on its negative gearing proposal, adding that he was not commenting on Labor's policy.
"This report was done late last year," he says. "It has been months in the pipeline. We didn't even know about Labor's policy which was announced two weeks ago."
Labor has pinned its election hopes on changes to negative gearing with a push to allow the concessions to apply solely to new properties.
However, BIS Shrapnel has revealed that this would have a 'multitude of unintended consequences'.
Among the findings, BIS Shrapnel says rents will rise by up to 10 per cent or $2600 a year and that new home construction will shrink by about 4 per cent nationally.
It says the measure will shave 1 per cent off GDP, costing the economy $19 billion a year, while 175,000 fewer jobs will be created over the next decade.
It also finds that government revenue will take a $1.65 billion hit through a reduction of receipts from a range of taxes.
But the broader finding that it will push 70,000 households into housing rental stress has raised the hackles of Labor which has dismissed the report as a 'joke'.
The last time Labor tinkered with negative gearing rules was in 1985, when the Hawke-Keating government abolished it for two years before it was hastily reinstated.
During that period, abnormal rental increases were experienced in both Sydney and Perth and not the rest of the country.
Hawtrey says the abolition of negative gearing in the 80s didn't last long enough to get a full perspective of its impact, arguing that the trend becomes more evident over a five-year period.
"There's no doubt that investors have been a big factor in the current home building boom," says Hawtrey.
"If you take that away you'll get less housing construction. With a reduction in housing supply it is inevitable that rents will rise."
Hawtrey also says applying negative gearing solely to new construction effectively puts an inevitable strain on property values that will ultimately have a dampening effect on housing construction demand.
"When the owner or investor comes to sell that new property it becomes a second-hand property and negative gearing would no longer apply."
Hawtrey says investors will factor in a lower selling price when buying a new property and, over time, this will lead to a broader drop in property investment.
Business News Australia has sought comment from Opposition Leader Bill Shorten.
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