Limiting negative gearing to new homes could cost the economy $19 billion a year, says BIS Shrapnel.
New modeling by economic forecaster BIS Shrapnel predicts limiting negative gearing to new properties will lead to lower house prices, higher rents, will cost the budget more than it saves, and will cause unemployment to rise.
The research predicts changes to negative gearing would have a series of knock-on effects on the economy for a decade. It predicts there would be 175,000 fewer jobs, lower council revenue, and lower stamp duty receipts for state government.
It claims that 70,000 households would be pushed into 'rental stress', where they would be paying more than 30% of their income on rent.
The report predicts a "short-run correction in real prices due to lower investor demand", and claims rents will rise as "landlords will require higher yields to compensate for the lost negative gearing concessions."
BIS Shrapnel has refused to say who commissioned the study, but has revealed that the modeling began before details of Labor's policy were released. For the research to be taken seriously, the public needs to know who paid for the report.
The report has sparked furious debate from all sides.
Treasurer Scott Morrison said the report confirms the Liberal party's concerns about the consequences of Labor's proposed negative gearing changes.
Opposition Treasury spokeman Chris Bowen said the report was "full of incorrect and quite frankly bizarre assumptions".
Kim Hawtrey, from BIS Shrapnel said, "We weren't thinking of any particular policy from any side of politics. We were really trying to consider a set of likely assumptions that somebody might propose."