Negative gearing has often been vilified, with critics
suggesting that it inflates home prices, reducing affordability for first-home
buyers.
However, negative gearing’s role in the housing market is
more nuanced.
By providing tax relief, it encourages investors to stay in
the market, supplying properties that millions of Australians rely on for
housing.
Here are several reasons why, in my mind, maintaining
negative gearing is essential:
1. Boosting Rental Supply: around one-third of
Australians rent their accommodation, and that's not necessarily because
they're poor, but often because of the stage of their life cycle and they don't
want to put down roots and buy a property.
The government has left the provision of accommodation for
these 8.5 million people to private investors- often called mum and dad
investors.
More recently the government has been encouraging large
corporations to become involved in Build to Rent accommodation, but according
to the latest tax office statistics, 67% of property investors had a taxable
income of less than $100,000 and 24% of these every day Australians are aged 40
or less.
Anyone who owns an investment property and provides rental
property accommodation knows how the operating costs of running their small
business have risen significantly. It is estimated that 70% of rental
properties are producing annual operating losses.
When rental suppliers receive tax benefits for providing
accommodation, they’re more likely to enter or stay in the market, ensuring a
steady supply of rental housing.
In today’s climate of housing shortages, investor
participation is critical to maintaining balance.
2. Stabilizing Rent Prices: Without negative
gearing, many investors would be forced out of the market due to these
increased holding costs.
This exodus would drastically reduce the rental property
supply, pushing rents up as competition for limited rentals intensifies.
The lesson from the 1985 experiment is clear: fewer rental
properties lead to higher rents.
3. Incentivizing New Development: Negative
gearing doesn’t just support investors in established properties; it also plays
a role in new housing construction.
Many investors purchase off-the-plan properties increasing
housing supply and indirectly supporting the construction industry.
Reducing negative gearing would discourage investors from
investing in these projects, slowing down new housing development.
4. Supporting Retirement Planning and Long-Term
Investment: Many Australians see property investment as a cornerstone
of their retirement strategy, aiming to build wealth and security for later
life.
Negative gearing eases the financial burden, particularly
for small investors who rely on this tax relief to keep them viable amid rising
holding costs and interest rates.
Removing this support would put a strain on these
individuals, diminishing their financial resilience.
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Jason Gwerder
Wednesday, 12 February 2025
