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The impact of removing negative gearing: high rents and zero affordability

By Tim Neary 09 January 2018 | 1 minute read

With Treasury documents outlining how Labor’s negative gearing and CGT discount policies would really impact the Australian economy, one expert says policymakers should heed warnings on adverse rental outcomes.

Following the reveal of Treasury documents acquired under freedom of information laws, the Property Council of Australia said that if Labor’s negative gearing changes are made of force and effect, investors face falling returns.

Chief executive Ken Morrison said that the council believes lower returns from investment properties would mean less investment, a tighter market and upward pressure on rental prices.

He said that this brings into question the structural integrity of the changes.

“We question the point of a ‘housing affordability’ policy that does next to nothing to reduce house prices but risks an increase in rents,” Mr Morrison said.

“Domestic investors could also seek to recoup losses in tax benefits through higher rents.”

Mr Morrison said that proposed solutions to Australia’s housing affordability challenges shouldn’t come at the expense of renters.

“Increases in rent would only exacerbate the housing affordability challenge and make it even more difficult for people renting to enter the housing market as owner-occupiers.

“Negative gearing should be retained with policy efforts focused instead on pulling the levers that can have a real impact on supply and prices.”

Mr Morrison also said that there are other ways to tackle the challenges, with lower downside risks.

“There is scope for the capital gains tax discount to be reduced to 40 per cent, but running the risk of higher rents from removing negative gearing without any significant fall in house prices is a gamble no government should take.”

RELATED TERMS

Affordability

Affordability refers to a product or service that is inexpensive and accessible for people with limited means.

Gearing

Gearing is defined as the relationship between debt and equity of a company that shows how much of its operations are financed by lenders or shareholders.

Negative gearing

Negative gearing occurs when the rental income of a property is not enough to cover the total costs of managing the rental and re-paying the interest portion of the loan.

Negative gearing

Negative gearing occurs when the rental income of a property is not enough to cover the total costs of managing the rental and re-paying the interest portion of the loan.

Rent

Rent refers to the payment made by a tenant periodically to a landlord for the use and occupancy of a property.

Rent

Rent refers to the payment made by a tenant periodically to a landlord for the use and occupancy of a property.