A new report has called for negatively geared investors to have their tax rebates cut back, according to a housing supply study released this week that is being presented to both federal and state government agencies.
The McKell Institute’s “Homes for All” report, The 40 things we can do to improve supply and affordability, encourages all politicians to recognise that negative gearing and untaxed capital gains are inflating prices and says that these investment incentives should be cut back as 'Action 16' of the recommendations.
The negative gearing changes suggested in the report try to counter what the McKell Institute sees as an “equity issue”, according to report author Sean Macken.
“We believe that negative gearing is helping those who already have access to property to be able to have access to more, which is pushing up the price of housing for everyone,” Mr Macken told Smart Property Investment.
“We need to increase the supply of housing but we also need to stop intensifying the demand for housing because we find that, in particular, our younger people are being crowded out by people with three, four, or more properties,” he said.
He explained that housing affordability is particularly a huge issue in New South Wales.
“There are increasing numbers unable to get any property at all,” he said.
The report found that 55 per cent of homes are owned by 22 per cent of the population and were negative gearing to be cut back he expects that investors would remain in the market.
“We are arguing that we believe people will still invest in more properties and maintain the rental market – they just shouldn’t be given such a big tax concession.”
He recommends that negative gearing be phased out, rather than cancelled overnight, and that it could potentially still remain for new properties and off the plan purchases.
BIS Shrapnel’s managing director Robert Mellor, however, believes that it actually provides affordable housing for people in the way of rental properties.
“I always think that the continued operation of negative gearing provides an incentive for investors to get into the market that leads them to ultimately keep rents at a lower level than they would otherwise be, as it is keeping investors more focused on capital growth properties and therefore rents aren’t quite as high,” Mr Mellor told Smart Property Investment, suggesting that if negative gearing were to be removed investors would be seeking higher payments from tenants.
“I think if negative gearing would be removed tomorrow, rents would have to rise to keep up with some of that potential benefit that people are getting.”
“Criticism of negative gearing is overdone,” he said, explaining that most investors only have one or two properties.
“I think the majority of people who are investing in residential are not negatively gearing anyway, but even so, why shouldn’t expenses associated with the purchase of a property be a deduction just like you can make deductions for all other sort of investments?”
While negative gearing and the reduction of the capital gains tax did help make the boom bigger in the past, he said that currently we are not seeing any increase in prices regardless.
“I would be really concerned that in markets like Sydney, when we’re not seeing much capital growth anyway, there would be a real significant discouragement for investors in the market," he said.
“People have this preoccupation with the negative impacts and that it fuels price growth. Well it does in a boom but we’ve long moved on from increases in prices, in the case of the Sydney market we’ve only had one good year in the last eight… We’re not going to see 40 or 50 per cent growth in a few years.”