Meaning that to arrive at the same place it would be cheaper for them to retain the current negative gearing policy and pay the new subsidy to the tenants.
We know the scheme is likely to fail because it has already been tried. Rudd's National Rental Affordability Scheme gave investors a $6,000 tax credit over 10 years, and aimed to build 100,000 properties.
That scheme, used by many high rise developers to underwrite projects, was a failure with approximately 37,000 of the proposed 100,000 being built between 2008 and now, no measurable impact on affordability, and large numbers of subsidised apartments occupied by wealthy fee-paying foreign students.
Shorten's scheme is 250 per cent larger, and envisages 32,857 dwellings a year being built in each of the final seven years of the program.
Currently Australia has around 110,000 housing starts a year, so 30 per cent of the new dwelling market is expected to be subject to this arrangement after 2022.
If the housing market does not expand, then first homebuyers and investors in average to expensive new property will be frozen out.
Labor presumably thinks the new housing market will expand. If they are right, then house prices will dive across the board, as tenants are sucked out of existing housing.
But the market won't expand that much.
We're already building at close to record levels, so the labour and materials are not available to scale up 25 per cent without depleting other industries and sending the price of labour and materials through the roof.
Schemes like this also bring a lot of administrative overhead and inefficiency.
Who is to determine what 20 per cent of the average rent is, and how is this to be defined? Like for like, geographical location for geographical location? Or will developers in 20 per cent below average locations just pocket the government incentive for no extra effort?
There will have to be means testing of tenants and monitoring of income tax returns, and who will check I'm not rorting the system by renting out spare rooms for cash?
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