Negative Gearing Must Stay

Limiting negative gearing to newly constructed property and doubling capital gains tax remains a central plank of federal Labor’s policy platform, their argument being that the current rules lead to inequality in the community. 

There are legitimate worries that our youngsters are struggling to buy and that rents are too high in our capital cities.

However, claims that negative gearing is the main reason for pushing up house prices affecting affordability is untrue. It is the cost of construction, infrastructure, taxes and local government planning issues that is mostly responsible. Labor’s policy of allowing negative gearing for new dwellings is deeply flawed policy and will simply encourage more urban sprawl. It will deliver hastily constructed, crap housing products and, importantly, have first home buyers competing with investors for homes in these newer areas, pushing up the prices. The idea, therefore, that Labor’s plan helps affordability in newly built suburbs where all future investors will buy defies all logic.

Labor’s policy acts as is a disincentive to supply rental accommodation in the established market. Existing housing stock will be ignored as an investment option putting pressure on the supply of rental stock in established areas where most people want to live. As a result rents would inevitable rise. Labor’s plan grandfathers the rules so investors holding existing property will be less likely to sell putting pressure on supply in these areas, keeping prices high and forcing families to the outer-reaches away from the developed parts of our cities. Discouraging investment in existing housing stock from the private sector, leaves it to state governments already under pressure to deliver more housing.

The last time a government tried to abolish negative gearing it was back in several months later as the voter backlash from soaring rents and falling property values in WA and NSW frightened them into a retreat.

About 80 percent of investment properties are owned by mum and dad types who only have one investment property. Labor’s proposal is not a tax on the wealthy and assumes all property investors are seeking to avoid paying tax. Investors are often attracted to property investments that either break even or are positively geared where they pay tax on the income.

If the current format for negative gearing is too generous then perhaps consider a cap on the amount of losses that can be claimed against income or consider similar tweaks. Unfortunately, federal Labor refuses to even talk to industry about their proposals.

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