Limiting negative gearing to new investment properties and reducing the capital gains tax (CGT) discount will only drive investors out of the market in droves and leave a gaping hole in the budget.

That's according to PIPA chairman Peter Koulizos, who said the research showed that Labor's assertion that their policy would save $32 billion over a decade was a "flight of fancy" when it was actually set to lose that amount because of drastically fewer investors in the market.

“Not only that, investors already pay almost four times in capital gains tax what they receive in negative gearing benefits over a 10-year period, so the government is already ahead financially,” Mr Koulizos said.

The PIPA modelling found that an investor who bought a $675,000 property today would receive about $23,583 in negative gearing benefits over a decade, but they would pay $104,703 in capital gains tax if they sold the asset – leaving the Federal Government with an $81,118 net gain. 

The modelling also found that a Labor Government could lose between $10 billion and $32 billion over 10 years, plus fewer investment properties would drive rents higher and further hinder first home buyers from entering the market.

Mr Koulizos said the modelling was not even worst-case scenario, given 45 per cent of investors indicated in the 2018 PIPA Investor Sentiment Survey that they would put their future investment plans on hold if Labor brought in the proposed changes. 

“I have no doubt that limiting negative gearing and reducing capital gains tax concessions by the Federal Labor Party will discourage property investors from buying property,” Mr Koulizos said. 

“Labor says they want to incentivize investors to buy new property, but our research shows that 93 per cent of investors buy established property as this has greater capital growth potential than new property. 

“Under the proposed changes, investors will pay more capital gains tax, but since they have probably bought a new property that will mean lower capital growth and therefore reduced tax payable to the government.” 

Mr Koulizos said Labor’s assumption that fewer investors would mean more first home buyers was incorrect with the ability to save a deposit being the main issue for first-timers. 

“Saving a deposit for your first property has always been difficult and has been made even more so over recent years with the First Home Owners Grant restricted to new dwellings when more than 80 per cent first-timers buy an existing property,” he said. 

Mr Koulizos said the reduction in revenue is likely to be even greater after the 10- year period as there would be fewer investors paying tax on their positively geared properties as well as paying capital gains tax on the strong equity growth that usually occurs after holding an established property for 10 to 20 years. 

Treasurer Josh Frydenberg said the research found the proposed changes could have a major impact, as investors would change their behaviour and stay out of the market.

Mr Frydenberg said the findings were a "warning shot" for the ALP and a stark reminder of why it needs to backflip on its housing policy.

But Opposition Treasury spokesman Chris Bowen has dismissed the research, saying there is "nothing to indicate it’s even based on a modelling of Labor’s policies".

It comes after peak industry body the Property Council of Australia attacked the plan.

A poll of more than 1,000 people, commissioned by the Property Council of Australia, found that only 24 per cent of potential investors surveyed said they would buy a newly built investment property if the ALP's proposed crackdown is implemented.

Property investors also said they would be less likely to buy a newly built property under Labor's proposed changes.

Mr Morrison told WILLIAMS MEDIA the findings highlight the dangers of making big policy changes at this "uncertain" time in the property cycle.

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