Gavin R. Putland,  BE PhD

Thursday, June 23, 2016 (Comment)

Negative gearing and the children-overboard effect

Back in 2003, when I re-invented the policy of allowing negative gearing for new homes only, in order to stimulate construction and put downward pressure on rents, I didn't intend it to be partisan. I intended it to be a no-brainer. Now that it has become partisan, the scare campaign against it has two main claims: that it will reduce property values, and that it will raise rents!

I have written thousands of words debunking the second claim (e.g., here, here and here). But in retrospect, maybe it's all for nought — because maybe the second claim is not only not believed, but not even meant to be believed.

There are certain matters on which the people want to be lied to, so that they can hide their true motives — if not from themselves, then at least from those around them. I'm calling it the children-overboard effect. Tell us that those Mozzie reffos threw their brats in the drink, because we just don't want them here. Tell us that requiring negative-gearers to build or buy new homes would hurt renters, because we just want to keep our asset values pumped up.

Well, hypocrisy comes at a price. If we want “jobs and growth”, workers must be able to pay for living space within commuting distance of jobs, out of wages that employers can afford to pay. If living space, which nature provides free of charge, is made artificially expensive by tax policies that penalize construction and reward speculation on existing assets, the price is paid not only in the distribution of wealth, but also in the production of wealth.

Hence, if a civilization makes a virtue of inflating the price of living space beyond the reach of its workers, it will eventually be conquered by another civilization with more rational priorities. The conquest need not be military. Why invade a country when you can buy it? — especially when the tinpot slumlord citizens seem to regard foreign acquisitions as a means of pumping up prices? But one thing is certain: the conquerors won't come in leaky boats.

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