Feb 28, 2016
Negative gearing allows investors to offset losses on investment properties against their taxable income to gain a tax break.
Limiting negative gearing to new housing will cause a multitude of problems, primarily - rental prices will increase to cover the costs of new housing rather than older established rental properties. The flow-on effect becomes a depletion of affordable rental properties on the market.
We’re talking about properties on the outskirts of town and in regional areas, where your everyday, regular family can afford to live - not $500+ per week properties in (for example) the Hobart CBD.
It’s not the wealthy that own these properties – it is your average mum and dad investor who provide either low or average rent housing to average working Australian families.
You don’t buy a NEW property and rent it out for $300 – you rent it out for $500 a week. Unfortunately that’s the only one you’ll be able to claim negative gearing on, encouraging investors to buy new properties, which doesn’t help your working class family.
Where will people who earn a low income go to rent if there are only new properties available on the market?
The Opposition says changes to negative gearing will aid with Australia’s housing affordability crisis, however the solution isn’t that easy.
If the changes are applied across all existing investment properties then prices will go down in the short-term, as there will be an oversupply of established properties on the market as investors are forced to sell.
Affordability will improve briefly, but when those properties sell prices will steadily return to current levels.
Even if the changes only apply once legislation is passed, the supply of affordable rental properties will fall over the next few years, driving rental prices higher, hurting the very people the changes are aimed at helping.
Such changes to negative gearing are designed to stop the wealthy getting an unfair tax advantage. If changes must be made, then capping the number of properties investors can claim negative gearing on seems to be a smarter option.
With the majority of mum and dad investors only owning one property they won’t be affected by such a change, allowing them to continue investing in affordable housing whilst endeavoring to secure their future through smart investment decisions.
- Terry Robinson