In its most simplistic form, negative gearing for investment housing allows investors to deduct their losses against their personal taxable income. These losses may occur when the investor incurs costs such as interest on a home loan as well as maintenance and other small expenses on an investment property. However, it is important to note that negative gearing is not unique to the property asset class; it also applies to businesses and shares in Australia.
The most important thing to realise about asset negative gearing is that it is fundamentally off-setting a loss. Although you can claim that loss on your tax return, the investor must carry the cost of that loss throughout the year. Ultimately, when investing, most purchasers would be hoping that rental rates increase over time and result in the asset moving from a loss-making one to an income producing one.
It is also important to note that between September 1985 and September 1987, negative gearing laws were changed. The government quarantined negative gearing interest expenses on new transactions. As a result, investors could only claim interest expenses against rental income, not other income.
Given that negative gearing provides a benefit to investors, we look at the impact these changes had on the investment market over the two-year period. The first component is the impact the changes had on the rental market.
According to the rental component of CPI data, rents across the capital cities rose by 21.8% over the two years to September 1987 (the period during which negative gearing laws were changed). The increase in rents was most pronounced over the period in Sydney (26.1%) and Perth (31.1%). As a comparison, over the two years to September 1985, rental costs rose by a lower 17.0%.
The data clearly shows that rental growth was present over this period and it was greater than it was over the two year period directly preceding it (The above chart shows the period for which the negative gearing rules were changed and are bolded black). Here you can see that rental growth was well above average, particularly recent averages, but it was not unprecedented with rents growing by a greater amount on an annual basis in late 1982 and early 1983.
Another important determining factor is the demand from investors over this period. Unfortunately the Australian Bureau of Statistics does not provide information on the number of loans to investors; rather it provides the total value. The total value of investment finance commitments in September 1987 was 41.5% higher than in September 1985. These figures seem to suggest that at that time there was no weakness in demand for investment housing however, a clearer outcome would be apparent based on the number of loans rather than the value.
The reason why negative gearing was reinstated in September 1987 was that it was proclaimed that rents rose sharply on the back of a fall in housing market investment. However, it doesn’t look as if investment in the housing market dried up throughout this period. Rents clearly did rise quite sharply throughout as demonstrated.
Many in favour of removing negative gearing from property say that it should occur due to the fact that housing is an unproductive asset class.
My argument is that given that housing provides shelter, if investors don’t purchase these assets, it would then be the responsibility of the Government to provide this shelter. Ultimately, that would mean that anyone that pays taxes would be funding housing for those who can’t afford it themselves.
One of the arguments against negative gearing is that the tax deductions afforded to investors in the housing market reduces government revenue. However, if investors did not provide shelter to those that can’t provide it to themselves, government revenue would already be reduced due to the fact that this responsibility would fall on the Government.
If we look at the recent Australian Bureau of Statistics (ABS) dwelling approvals data, it is interesting to see just how much of the new housing supply is created by the private sector as opposed to the public (government) sector. According to the ABS dwelling approvals series which began in July 1983, between July 1983 and October 2012, 4,355,266 dwelling approvals have been given to the private sector compared to just 228,843 to the public sector. Over the last 29 years (give or take a few months), public housing approvals have accounted for just 5.0% of all dwelling approvals. This is less than 8,000 approvals by the public sector each year!
Over the 12 months to October 2012, 145,515 dwellings approvals were granted to the private sector (98.6%) compared to just 2,065 to the public sector (1.4%).
The most recent Census data shows us that of those homes occupied, 29.6% are rented (investment properties). Based on this data, if we assume that without the private sector building homes for investment purposes, the public sector would have to account for 29.6% of all dwelling approvals to cover those in rental accommodation. Over the past 12 months this would have equated to 43,684 dwelling approvals. If we also consider that the median home price across Australia as at October 2012 was $386,000, and if the Government had to buy the land and build 43,684 homes, this would cost the Government of the day $16,861,900,480 based on the number of approvals and the median home price.
Of course this is a rather simplistic calculation and if the Government were to build homes on their own land it would cost them less as that figure includes land and building. Also, it is unlikely that private investment in residential housing would cease without negative gearing but I would expect that it would fall.
The most recent taxation statistics data shows that over the 2009-10 financial year, $4.81 billion in net rental deductions were claimed by taxpayers.
In order for the Government to break even to allowable deductibles from tax returns they would have to be building those 43,684 homes at a cost of $110,100. Based on the current median home price across the country at $386,000, they would have only been able to build 12,461 homes over the past 12 months or 8.4% of the total building approvals over the past year. It should be noted that not all new builds are for investment purposes but if we assume that 29.6% are there is a significant short-fall.
When you look at these figures it is obvious why negative gearing is unlikely to be removed. Whether the removal of negative gearing impacted investment or not, and whether it lead to an increase in rents is a secondary concern relative to how much it would cost the Government to supply public housing for the almost 30% of Australians that don’t own their own home.
These figures are not to suggest that if in the case negative gearing was removed, there would be no investors in the market however, the appeal of negative gearing is part of what attracts many investors to the market. Without negative gearing it is likely that there would be fewer investors and therefore less private developers delivering new homes coupled with a greater need for the public sector to provide housing. The flow on effect may also be that there would likely be lower demand for housing credit. Although some proclaim removing negative gearing would cause house prices to fall, I would expect that new housing supply would be even tighter as developer’s struggle to achieve pre-sales for new development, this may in-turn force prices higher than they otherwise would be.
By looking into the figures in more detail, it makes good economic sense for the government to allow housing investors to negatively gear their properties so that the significantly greater cost of providing social housing is not borne by the Government and ultimately the Australian taxpayer.
This is one of the more spurious defences of negative gearing that I have read. Over 90% of property investors buy pre-existing dwellings. If negative gearing was removed and all of these investment properties were sold (a crazy assumption in itself), who do you think they would sell to? That’s right, renters. In turn, those renters would be turned into owner-occupiers, thereby reducing the demand for rental properties.
Because investors primarily purchase pre-existing dwellings, negative gearing in its current form simply substitutes homes for sale into homes for let. It, therefore, does nothing to improve the overall stock of housing nor improve rental supply or rental affordability. Yet, the added demand from tax subsidised investors places upward pressure on home prices. Perhaps this is why most other nations – many with more affordable rental accomodation than Australia – no not allow negative gearing.
You also conveniently failed to mention that when negative gearing was quarantined between 1985 and 1987, rents only increased in real terms in Sydney and Perth. In all other capitals, real rents were either flat or fell. As such, you cannot conclude that the removal of negative gearing had any material impact on rental costs.
A more sensible approach would be to allow negative gearing on newly built homes only. This way, housing supply would increase, placing downward pressure on both prices and rents, while also creating non-mining jobs and saving the government money.
Hi Nice Spruik
I am not sure where you have got the figure that 90% of investors buy pre-existing dwellings, could you please provide a link as I have not seen that data previously? I don’t disagree that most buy existing dwellings however, I feel that the 90% quoted is somewhat inflated.
I am also not sure about where I stated that if negative gearing was removed that all these investors would sell, I made no such statement. What I did say is that investment activity would likely be reduced and therefore the responsibility of providing accommodation to the rental market would be borne by the Government and ultimately tax payers.
Your statement about when negative gearing was quarantined is also incorrect. According to the rental component of CPI data, rents across the capital cities rose by 21.8% over the two years to September 1987 (the period during which negative gearing laws were changed). The increase in rents was most pronounced over the period in Sydney (26.1%) and Perth (31.1%). Over the same period, CPI rose by 17.9%, the other cities which recorded greater increases over the two years include: Melbourne (19.6%), Hobart (19.7%) and Canberra (19.8%). On the other hand, rental increases were below CPI in Brisbane (9.8%), Adelaide (16.5%) and Darwin (6.2%)
Regards
Cameron
Cameron. The RBA statistics (table D6) shows that the overwhelming majority of investors purchase pre-existing dwellings over newly constructed dwellings. In fact, in the decade to October 2012, 93% of investors purchased pre-existing dwellings versus only 7% purchasing new builds.
As for your statement that: “investment activity would likely be reduced and therefore the responsibility of providing accommodation to the rental market would be borne by the Government and ultimately tax payers”. How is this a problem given that the overwhelming majority of properties purchased by investors are pre-existing dwellings? Negative gearing, in its current form, is simply transfering homes for sale into homes for let and, by pushing-up house prices, is turning would-be owner-occupiers into renters. If the removal of negative gearing caused this situation to reverse, it would be beneficial for society.
If you truly cared about protecting taxpayers, a better option would be to allow negative gearing only on newly constructed dwellings. This way housing supply would be increased at lower cost to government.
Finally, your comment about rental increases proves my point. Putting aside semantics, if the commonly held view that removing negative gearing would increase rents was true, surely rents would have risen strongly in real terms across Australia when it was removed, not just in two capital cities?
Based on an examination of the data, your blog has failed to make the case for negative gearing.
Hi Nice Spruik
The data which you have referenced is the total value of investor finance commitments rather than the number. As mentioned in my blog post this is not necessarilly a good proxy for actual volume. It should also be noted that this is just housing finance commitment data, some investors may not be using finance, whilst overseas investors may not be securing their finance in Australia.
Investment activity would be reduced is a hypothesis as to what would happen, of course no one truly knows. Yes more people buy existing homes but the point is a proportion of investors buy new homes and many of those new high rise complexes going up around inner city areas are now targeted towards the rental market (investors). What I do know is that property developers require a significantly greater number of properties to be pre-sold now than they did before the financial crisis. These developer’s are also businesses, if they can’t achieve these pre-sales the projects wouldn’t go ahead and new housing supply would likely be reduced which is likely to create even greater pressure on house prices.
I don’t understand how anyone can suggest that people that choose to buy brand new homes which are often more expensive than pre-existing homes within the same area should receive the benefit of negative gearing whereas other purchasers don’t. Investors are providing shelter for those which can’t afford or aren’t in a position to provide shelter for themselves, why discriminate? Keep in mind that those that invest in new housing also can claim depreciation which investors of pre-existing homes can’t unless they do some type of renovation.
With regards to your final comment, the statement that they only rose in two cities is not correct as shown and as my graph shows, rental growth back then was significantly greater than it was over the preceding two year period, you would assume that is at least partially a result of the change to negative gearing rules.
I would also argue that two years is not necessarilly long enough to see what the full impact of removing negative gearing would have on rents however, you will note that rents continued to climb once it was re-instated and then fell quite sharply.
The ultimate question is that do you want your taxpayer money going towards the Government providing rental accommodation or would you prefer that service is provided by the private sector and the funds are used elsewhere? There are plenty of other ways to bring down the cost of housing such as increasing land supply, removing stamp duty, providing a more rapid development approval process and reducing Government development fees and charges, it is my belief that these would all be a much better way to tackle housing affordability than removing negative gearing which may actually cause prices to rise further.
Regards
Cameron
“As mentioned in my blog post this is not necessarilly a good proxy for actual volume. It should also be noted that this is just housing finance commitment data, some investors may not be using finance, whilst overseas investors may not be securing their finance in Australia”.
That’s a cop-out Cameron. Whether it is volumes or values data is irrelevant. The huge imbalance of investors buying pre-existing dwellings (and not adding to supply) is there for all to see. Also, what relevance are investors that buy without finance or overseas investors? Neither of these are negatively geared and would not be affected by changes to negative gearing rules.
“These developer’s are also businesses, if they can’t achieve these pre-sales the projects wouldn’t go ahead and new housing supply would likely be reduced which is likely to create even greater pressure on house prices.”
You can’t be serious? Demand would tank and prices would fall, irrespective of whether supply fell. Anyway, if you are worried about supply, limit negative gearing to newly constructed dwellings only. Problem solved (at lower cost to taxpayers as well).
“With regards to your final comment, the statement that they only rose in two cities is not correct as shown and as my graph shows, rental growth back then was significantly greater than it was over the preceding two year period, you would assume that is at least partially a result of the change to negative gearing rules.”
No, real rents only rose significantly in two cities – Sydney and Perth – when negative gearing was removed between 1985 and 1987. Also, population growth surged over this time period, which is likely the main reason why rents grew more strongly over the two years when negative gearing was quarantined than the two years prior.
Hi Nice Spruik
It is a fact that the value of finance commitments is not a good proxy for the volume, especially if you consider that a first home buyer is more likely to be getting a 90% to 95% LVR loan than an investor that is using equity and would most likely want to avoid mortgage insurance. The point about overseas investors is taken but your previous point was specifically about the number of investors as opposed to owner occupiers.
I still don’t know why demand would tank. People still need somewhere to live, the population is still growing and jobs are mainly located within capital cities. If the supply of new housing fell, the population increase would mean that demand would continue to grow, people still get older and leaver the parental home as well. Who is going to provide shelter for the population, the Government (taxpayer). As the dwelling approval data shows, the Government is doing very little to provide this shelter and is leaning on the private sector to do so.
Real rents only rose significantly in two cities yes but they still rose above inflation in three other cities. Nowhere do I make the statement that rents rose ‘significantly’. Please see what was written in the article ‘According to the rental component of CPI data, rents across the capital cities rose by 21.8% over the two years to September 1987 (the period during which negative gearing laws were changed). The increase in rents was most pronounced over the period in Sydney (26.1%) and Perth (31.1%). As a comparison, over the two years to September 1985, rental costs rose by a lower 17.0%. The data clearly shows that rental growth was present over this period and it was greater than it was over the two year period directly preceding it (The above chart shows the period for which the negative gearing rules were changed and are bolded black). Here you can see that rental growth was well above average, particularly recent averages, but it was not unprecedented with rents growing by a greater amount on an annual basis in late 1982 and early 1983.’
Also, population growth increased over the period as you have stated however, it was recorded at 1.5%pa, I would hardly suggest that is a surge and population, especially when you consider that the population has growth at an average annual rate of 1.3% over the 30 years to March 2012. Population grew by a furth 1.7% over the year to Sept-88, 1.6% to Sept-89 and 1.5% to Sept-90. Over the same periods, rents grew by an annual rate of 11.4%, 8.9% and 5.5%. Population growth does have an impact on rental growth however, there are a number of other considerations such as rental vacancy rates and supply.
It is clear you don’t agree with my analysis and that is fine, I didn’t expect people to agree however, I still don’t see how and why investors spending more to buy a brand new home should get preferential treatment over others. I also fail to see why investors in shares and businesses should receive beneficial treatment to those providing shelter that the Government is unable or unwilling to provide for renters.
Regards
Cameron
Good article Cameron, and it certainly backs up all the points made last month in this detailed Australia Property Forum discussion…
http://goo.gl/6xT4p
Of course, the comments above by ‘Nice Spruik’ are to be expected. The bears have been listening to gloomer sites telling them the opposite for years – i.e. that rents didn’t rise when NG was removed. In fact the truth is that rents went through the roof last time NG was removed, which is why it will never happen again!
I wonder if by allowing any amount of losses on properties to be deducted against other income in Australia are we reducing competition from the private sector?
If you look at countries like the USA you’ll find a large number of Real Estate Investment Trusts (REIT’s) formed to provide rental accommodation across the country. They develop, buy and sell apartment buildings and the like (with facilities, maintenance staff, front desk staff etc so generally the properties are in better condition that our rental accommodation in Australia). The various state and local governments regulate and enforce various housing goals on these companies too (to provide some low income housing). I don’t see governments in Australia being able to enforce any housing goals on private investors in Australia (although with the National rental affordability scheme I guess we are trying, but once again the taxpayer is funding this not private investment).
Where are the huge listed and private REIT’s like Post Properties http://www.postproperties.com and Archstone http://www.archstoneapartments.com/ to name a couple? I guess in Australia they don’t have the benefit of off-seting their “losses” against other income like the private investors.
I think many commentators have commented about the fairness of allowing rental deductions to be offset against other income i.e. who claims the majority of those deductions? (you will of course find the top taxpayers claim the lions share). Hence why Treasury via the Ken Henry review would have liked to see these generous deductions reformed too.
Is it really a good idea to encourage people to lose money in the hope of future gains?
Hmmm so many questions, but as with the Ken Henry review, nothing will change and Australian housing markets will continue to appear in the top 10 most expensive lists. I don’t think you could find a professionally managed and maintained 2 bedroom apartment in Australia for $1000 a month like you could overseas. Perhaps we should be using those tax breaks on high speed rail to open up vast corridors of additional affordable land to develop? A lot of small/medium sized cities is more efficient than a few overcrowded ones with infrastructure gridlock.
Disclosure: I do own a 2 bedroom apartment in Sydney and I rent a house elsewhere from a real estate agent, I have also lived in the US quite a few years in Post, Archstone and private rental properties so I can compare the quality of the markets (and our rental accommodation is by far more expensive and of poorer quality). Yes we have a stronger economy and lower unemployment, but even when the US is riding high, it is still far cheaper to live there.
Hi Wayne
I would suggest that we are reducing competition however, some developers do use this type of model in some areas of the country although it is quite rare.
There is no incentives for REITs such as these to be set-up in Australia as you say. I also believe that the high cost of land and the significant cost of construction would also act as a deterrent in Australia. Perhaps the Government could do a public private partnership on their own land for rental accommodation such as this, I think it would be a progressive idea.
Regards Cameron
Definitely public / private partnerships are a popular model in the US giving away some future tax revenue on a development or new Costco outlet etc in return for a company committing to develop in your county/state.
Also we could place a limit on the amount of deductions allowed to be offset against other income (and tinker with the number over the years). i.e. in the US “the IRS limits your losses from your rental business to a maximum of $25,000 per year. The rules and criteria for Passive Activity Losses are found in IRS Instructions for Schedule E. Note: this is $25,000 in total losses from all your rental properties.” http://taxes.about.com/od/taxhelp/a/Schedule_E.htm
“Went through the roof” is a very deceiving way of putting it given the CPI increase over the same period!
I bet there are many investors praying it won’t be changed, but we have state and federal government desperate to reach surplus. I wouldn’t be surprised to see changes to negative gearing in the future.
” I also fail to see why investors in shares and businesses should receive beneficial treatment to those providing shelter that the Government is unable or unwilling to provide for renters.”
investors buying existing dwellings do not provide shelters, the shelters was there before the investment, they did not add to the supply, they just pushed the price up and forced a would be OO to be renter.Quite nasty.
The removal of negative gearing, (ie the disallowing of expenses against income for tax purposes), would constitute an increase in taxation for suppliers of accommodation. It is quite obvious that if a further cost is imposed on a significant proportion of service providers that the end cost of the service can be expected to rise. This applies to any service or goods provision.
Imposing further costs of rentals on the already stretched less fortunate members of society would be a very cruel act. Somebody needs to stand up for the interests of the less fortunate poor renters. If anything, property investment needs to be further encouraged through the tax system.
“Is it really a good idea to encourage people to lose money in the hope of future gains?”
Almost every business endeavour loses money in the early years. Capital has to be invested. Fortunately those losses are allowed to be deducted for tax purposes.
Cameron
If the rent increases were simply a repeat of the events of 1982/1983 then, without identifying fundamental differences in other relevant factors (CPI, interest rates, wage increases, population growth) then isn’t it more likely that the 1985 to 1987 rent increases were caused by the same factors that caused them in 1982/83?
I haven’t studied this is any detail but a quick glance at CPI and interest rates would suggest that they were the cause of the rapid rent increases and that negative gearing’s removal had nothing to do with it?
Hi Richard
Given I am only in my early 30′s I can’t accurately comment as to what happened in 1982/83 however, mortgage rates were slightly higher between 1985 and 1987 than they were between 1985/87. I can’t determine why rental growth was so strong back in 1982/83 however, I can state that over that period and the period over which negative gearing rules were changed, rental growth has been much higher (in actual not inflation ajusted terms) than we have seen since.
As I said in the blog post rental growth was well above average, particularly recent averages, but it was not unprecedented with rents growing by a greater amount on an annual basis in late 1982 and early 1983. As I have also said in previous comments I don’t believe that two years is really long enough to determine the full impact. What I do believe though is that private investment in rental accommodation would ease were there no negative gearing avaialable and I believe that the result would be either Government would have to pick up this slack or rental growth would be strong once again as supply is constrained and competition for rental accommodation heats up.
Regards
Cameron
Cameron also forgets to mention that Australia experienced a harsh recession in 1983, which would have suppressed rental growth. By contrast, the economy was much stronger between 1985 and 1987, not to mention the higher population growth over this period.
As I said above, this blog is a poor attempt at showing the merits of negative gearing. As the data clearly shows, it has done absolutely nothing to boost housing supply but has artificially acted to boost housing demand and therefore prices. Perhaps that’s why the over whelming majority of developed countries do not allow negative gearing.
Hi Cameron
It sounds like we agree that no conclusion can be drawn on the relationship between negative gearing and rents. As you say, the time frame is too short and history suggests inflation might be the key factor.
On your last point, are you talking short term or long term?
If negative gearing benefits are factored into investors’ returns then I think we both agree that something needs to give if NG was removed. I would argue that price is more likely to adjust (since we no longer live in a high inflation, rising wages environment) but you might argue rents will increase.
Either way, one of these needs to move to restore the returns of investors to their required level. Once this has occurred (whichever it is) investors will be earning the same rate of return they did previously, but negative gearing tax benefits won’t be part of it.
As a result, the quality of investor earnings (now all cash) will increase and the universe of potential buyers will expand (since those who can’t value negative gearing deductions are no longer at a disadvantage). In this environment (of higher quality earnings and greater number of potential investors) it is hard to see why investment in housing would fall long term (even though it may go through a difficult ‘adjustment period’)?
This is consistent with my observations on Govt tax benefits and subsidies generally. Whilst they may nominally accrue to buyers or users, economically they end up in the hands of sellers (or those who held the assets prior to the subsidy/tax benefit coming into place).
Or, to put it another way, all they do is push up the price of the relevant asset – be it property, agricultural land (in the case of MIS schemes) or solar panels.
Regards
Richard
Hi Richard
We do agree, in the short-term I believe that either prices would fall or rents would rise if negative gearing was removed however, I believe that rental increases are more likely as those investors that were negatively gearted look to move their investment to positive gearing.
I guess the big questions are how much would rents move and would they move far enough to negate the fact that the fact that there is no negative gearing and therefore housing investment is less appealling? The question is then what happens when renters can no longer afford to pay rent, nor can they afford to take out a mortgage? This would create more social issues and a requirement for the Government to intervene and provide a greater amount of social housing. I think this is the reason why we are now seeing schemes such as NRAS which incentivise developers to provide rental accommodation to low income households. I believe it is easier and more cost effective for the Government to undertake these types of schemes rather than taking on the responsibility of delivering this product themselves.
The last time negative gearing was removed, here’s what happened to rents after adjusting for inflation:
Sydney: +6.2%
Melbourne: +1.1%
Brisbane: -7.6%
Adelaide: -2.0%
Perth: +10.7%
Hobart: -1.5%
Darwin: -8.1%
Canberra: +0.7%
Gee Cameron, your hypothesis that rents would rise if negative gearing was removed is looking shaky based on actual historical experience. Only Sydney and Perth experienced significant rental increases following the removal of negative gearing and rents actually fell in four capital cities.
I had a little play around with this helpful calculator: http://www.rba.gov.au/calculator/quarterDecimal.html
Overall CPI increase:
Sep 83 – Sep 85: 11.5%
Sep 85 – Sep 87: 17.9%
So real rental changes:
Sep 83 – Sep 85: 5.5%
Sep 85 – Sep 87: 3.9%
It looks like removing negative gearing actually slowed the real rate of rental increases!
Hi Cameron
We seem to have quickly gone from either prices falling, or rents rising, to an assumption that rents will rise?
It is quite conceivable that prices will fall (in fact that would be more logical given that it seems to be prices that are out of whack vs long term equilibrium). In this environment rents may not rise at all and, in fact, they may also fall.
Such an outcome would be nirvana for renters and future purchasers (albeit at the expense of current owners).
So, on the assumption (and it is very definitely an assumption since we don’t know how the future would play out) that the element of the equation which is furthest from its long term equilibrium (ie prices) will be the one to adapt to a ‘negative gearing free’ environment:
1. Rents may remain unaffected, or even fall (long term that is)
2. Affordability may increase
3. The need for the Govt to provide social housing may lessen
Negative gearing in it’s present state may well be exacerbating demands on other govt resources (although, to be honest, I don’t think it’s the major factor in high property prices) and so removing it may ease these other burdens.
But, it all comes down to what assumptions (or guesses) you make about the future.
Regards
Richard
Great article Cameron!
You’ve provided a fantastic argument demonstrating the positive effect of negative gearing on the housing market. You’ve also correctly identified dwelling approvals as the metric for measuring policy outcomes. These investors are providing much needed new housing that would otherwise have to be provided by the public sector.
It’s a fantastic argument for restricting negative gearing to newly built homes only, and we should focus investor incentives on this task. After all, money invested in existing housing stock isn’t improving the key statistic of increased dwelling approvals. And as you’ve identified, this still costs the government money in lost taxes which it could instead devote to public housing projects. Cameron, you seem like such a civic minded individual, genuinely interested in increasing the supply of affordable housing for all. You surely agree that this is the logical conclusion to your well reasoned argument.
Hi Parry
Thanks for your comments. My issue with saying that someone can only negatively gear new investment properties is that it discriminates. This would be the equivalent of saying that you can only negatively gear shares in start-up listed companies which is not really equitable. I think the Government along with developers can look at ways to make investing in new properties more attractive than investing in existing properties rather than biasing them by saying they are the only one’s which receive the benefit of negative gearing. These benefits should be obvious via price, rental return (and yield), location and design. At the moment, I believe the biggest deterrents for investors when looking to purchase brand new stock is the price comparative to existing stock and the fact that there has been no significant design improvements over recent years. Finally, the fact that strata levies across new stock are often exorbinant, althought they are often discounted during the first few years of the scheme, is also a further disincentive to invest in new unit stock in particular.
Regards
Cameron
So you’re saying that changing negative gearing rules would be “not really equitable”? As opposed to the current system, where renters earning salaries have to pay extra tax to make up for deductions claimed by speculators who push up prices of existing houses? It seems that those renters are being doubly screwed over, but at least the speculators are being treated equitably… To paraphrase your article, “ultimately, this mean that anyone that pays taxes is funding the property portfolio of those who can afford it”.
The usual argument is that the renters benefit because negative gearing keeps rents down, but that’s been refuted above. Or that somehow, a great shortage of rental stock would suddenly appear…and yet, just about every country in the world gets by without negative gearing…
In fact, I’d say the “equitability” argument is the silliest since Julia Gillard’s comment that “an abolition of negative gearing would cause distortions to the property market”, when it is a major distortion to the setting of fair prices for property, and fair rents. What she meant was she’s scared house prices might fall and she’d lose votes from people who felt entitled to their tax deduction…