While governments are often rewarded for policies aimed at multinational corporations, large institutions and the ultra-wealthy, history shows they can face a very different reaction when reforms are perceived to make it harder for ordinary Australians to improve their financial position.
In my role, I have the privilege of being exposed to an extraordinarily broad cross-section of commercial property transactions, investment decisions and private wealth creation. Every week I meet with investors, business owners, family offices and property owners whose combined holdings represent a significant pool of private capital across Australia.
What is often overlooked, however, is that many of today's successful investors started as something far more relatable, aspirational Australians. Small business owners. professionals, tradespeople and families. People who worked hard, delayed gratification, sacrificed their lifestyle while taking calculated risks and making long-term investment decisions in pursuit of greater financial security.
While their circumstances may differ considerably today, one observation has consistently emerged from these conversations, particularly in recent months. There is a growing concern that the traditional pathways Australians have used to build wealth are becoming progressively narrower.
For generations, Australians have been encouraged to save, invest, purchase property and build assets over time. Yet a growing number of people now feel that each successive policy change is making that journey more difficult. Whether it is changes to negative gearing, capital gains tax, superannuation or investment structures, the concern is not necessarily about any one reform in isolation. It is about the cumulative effect of repeatedly narrowing the wealth creation window available to ordinary Australians.
That concern matters because Australia's prosperity has never been built solely on protecting wealth. It has been built on creating opportunities for people to accumulate it.
Importantly, this is not a new political phenomenon.
Australian political history is littered with examples of governments and oppositions discovering that voters react strongly when they believe their ability to get ahead is under threat.
The most obvious recent example was the 2019 Federal Election. Labor entered that campaign as overwhelming favourites carrying proposals to restrict negative gearing and reduce the capital gains tax discount. Despite widespread expectations of victory, the party suffered a shock defeat. While there were a range of contributing factors, many political commentators, strategists and Labor figures themselves pointed to concerns among middle-income investors and aspiring property owners as one of the reasons the policy package failed to resonate with voters.
At a state level, the Perrottet Government's proposal to replace stamp duty with an annual property tax was another reminder of how politically sensitive wealth creation and property ownership can be. While many economists praised the proposal, many voters saw it differently. The perception that home ownership would attract an ongoing tax burden ultimately proved difficult to overcome.
The common thread is not whether these policies were economically right or wrong. It is that governments consistently underestimate how strongly Australians react when they believe the rules around wealth creation are being changed.
That brings us to today.
The Albanese Government entered this term with an enormous parliamentary majority and what many would regard as a substantial mandate. There is no question that housing affordability is a genuine issue that requires attention. There is also no question that governments have a responsibility to ensure the tax system remains fit for purpose.
However, there is a significant difference between improving affordability and narrowing the pathways through which Australians build wealth.
The proposed changes to negative gearing and capital gains tax are already generating significant discussion. Yet, in my view, the less-publicised agreement negotiated between Labor and the Greens regarding self-managed superannuation funds may ultimately prove just as significant.
Under the agreement, Australians will no longer be able to use limited recourse borrowing arrangements through their SMSFs to purchase residential property.
The argument from the Greens is that this will stop SMSFs competing against renters and first-home buyers at auctions.
On the surface, that sounds compelling.
The problem is that Australia's housing market does not suffer from an investor problem. It suffers from a supply problem.
Australia's rental housing stock is overwhelmingly provided by private investors. Every policy that reduces the incentive for private capital to invest in residential property ultimately reduces the incentive to provide rental housing.
That is where I believe policymakers are making a fundamental mistake.
The Government has pointed out that SMSF borrowing accounts for less than one per cent of residential lending activity. If that figure is correct, then it is difficult to argue that removing it will have any meaningful impact on affordability.
What it will do is remove another source of investment capital from residential property.
At the same time, investors are facing changes to negative gearing, changes to capital gains tax treatment and an increasingly uncertain policy environment.
Viewed individually, each measure may appear manageable.
Viewed collectively, they represent a significant shift in the attractiveness of residential property as an investment asset. When governments make one asset class less attractive, money does not simply disappear. It moves elsewhere.
This is where, as I have previously stated, I believe commercial property will become one of the major beneficiaries of these reforms.
For many years, residential property has been the default wealth creation vehicle for ordinary Australians. Increasingly, commercial property is becoming one of the last major sectors where aspirational Australians can still apply many of the same principles that previous generations used to build wealth.
Importantly, the SMSF borrowing restrictions negotiated with the Greens apply to residential property, not commercial property.
An investor can no longer use leverage through their SMSF to acquire a residential investment property, but they can still use leverage to acquire a warehouse, an industrial unit, a retail investment, a medical property or even the premises from which they operate their own business.
For many Australians, particularly small business owners, that distinction is likely to become increasingly important. As a result, I believe many investors who may previously have directed capital towards residential property will increasingly look towards commercial real estate.
Australia has long been one of the world's great success stories because ordinary people believed they could improve their circumstances. They believed that if they worked hard, took sensible risks and invested prudently, they could build something better for themselves and their families. This desire to build wealth has, in large part, supplied Australians who require it with adequate rental accommodation. Reducing that investment capital flowing into residential property does not create more rental housing, it will likely have the entirely opposite effect.
The lesson from Australian political history is remarkably simple. When governments repeatedly narrow the pathways through which ordinary Australians build wealth, they may sometimes win the policy argument in Canberra, but they often lose the political argument everywhere else.
