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

By Tim Neary
impact of removing negative gearing, high rents, house affordability

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.”

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