If you’re hearing a distant drumming sound lately, it’s coming from rational economists repeatedly beating their heads against the wall while listening to the ridiculous debate over Labor’s housing affordability policy.

Labor has proposed restricting negative gearing to newly constructed properties while having the capital gains ‘discount’ from 50 percent to 25 percent. Labor claims this will “help level the playing field for first home buyers competing with investors” and “help put the Australian dream of home ownership back within the reach of middle and working class families.”

Master Builders Australia released modeling this week showing this change will cause a potential loss of up to 32,000 full-time jobs, 42,000 fewer new dwellings being built and a reduction of nearly $12 billion in building activity. Labor disputes this, claiming it doesn’t reflect Labor’s policy because it doesn’t take into account grandfathering.

This excuse must be rejected. Contrary to Labor’s claim, it would be dishonest to model transition effects (such as grandfathering existing negative gearing recipients) as if they represent the ongoing effect of the policy. The whole point of transition arrangements is that they are temporary.

Labor can rightfully claim that grandfathering will slow down the negative effect on building in the short term — but not that the effect isn’t real.

Labor has proposed restricting negative gearing to newly constructed properties.CREDIT: JAMES ALCOCK