Labor’s plan to axe negative gearing and halve capital-gains deductions could push house prices down a further 8 per cent, a contentious report has claimed.

Taking into account an interest rate cut, property prices nationwide would continue to decline by 4 to 8 per cent over three years (2020-2023), with Sydney and Melbourne expected to bear the brunt, the report from research company SQM found.

But analysts and the Labor opposition have slammed the report variously as “irresponsible” and “hugely overstated”.

Rents across capital cities would initially remain steady before rising by up to 12 per cent due to an expected drop-off in new housing supply, the modelling shows.

Labor’s proposal includes a plan to restrict negative-gearing tax concessions to new properties, and halve the current capital-gains tax discounts to 25 per cent for investors.

Property prices would continue to decline between 4 and 8 per cent. Graph: SQM

The report, which is based on the introduction of these policies from 2020, also predicts that property sales turnover would fall by up to 15 per cent. That would bleed $2.3 billion in revenue from stamp duty out of government coffers.

Conversely, should the Coalition win the election in May, SQM predicted Sydney and Melbourne property prices would rise by 14 per cent over the three years.

SQM managing director Louis Christopher said: “In short, if Labor’s negative gearing policy is legislated in its current form, we expect a rise in rental yields, which will occur through a combination of additional falling dwelling prices and, eventually, a rise in rents.”

Bowen hits back

Shadow treasurer Chris Bowen slammed the report, arguing that it did not take Labor’s policy on “grandfathering” – where assets bought before the policy began would be exempt – into account.

“Making ridiculous claims about massive property price falls or increases in rents resulting from Labor’s reforms is both irresponsible and flies in the face of the evidence of the Australian Treasury and independent economists,” he said.

“There’s been a parade of shonky property reports claiming to ‘model’ Labor’s reforms, but all fail to make reasonable policy assumptions or factor in Labor’s actual policy settings. As the election creeps closer expect Josh Frydenberg and the Liberal Party … to champion any shonky report written by any property market spruiker.”

In January, The Sydney Morning Herald reported that Treasury had advised the then-Turnbull government that Labor’s changes would have a “small” impact on property prices.

George Christensen on #negativegearing after the Coalition was slapped down by Treasury:

– Treasury is often proved wrong

– Under ALP prices would "plummet even more"

– "I don't need Treasury … Blind Freddie can see what's going to happen" around rents#auspol @abcnews pic.twitter.com/Qg9eFEeNsB

— Dan Conifer (@DanConifer) March 6, 2019

Grattan Institute budget policy and institutional reform program director Danielle Wood said the report was “hugely overstated”.

“The house price effects are hugely overstated,” Ms Wood said. “Their model is a bit of a black box, but it is entirely unclear to me how a change in negative gearing could lead to a reduction in house prices almost 40 times larger than the value of the lost tax concessions,” she said.

The housing correction we had to have?

The report’s finding that prices will fall and rental yields will rise is correct, but it won’t be as severe as predicted, MacroBusiness co-founder Leith van Onselen said.

“Prices will fall, that’s a no-brainer. But I don’t agree with the magnitude of this report. It says under Labor’s policy we’ll have, at middle range, 6 per cent falls. But if there is no change, prices will rise an average of 11 per cent, so that’s a 17 per cent difference nationally.”

The fact that may investors have already left the market will mean less of a hit, probably about 5 per cent, Mr Van Onselen argued.

“Labor will play this down, [Mr] Bowen will argue it wont affect house prices, but it is an affordability measure. Nobody should beat around the bush – do you want affordable housing or not? It’s a simple question.

“In 1990 Paul Keating said it was the recession we had to have, and this is the housing correction we had to have. We made house prices so out of whack that we ripped off a whole generation,” he said.