The tax benefits that investors receive through negative gearing and capital gains tax pushed up property values – right?
No – that’s wrong according to a new report which shows these measures are helping to boost the supply of new homes, put downward pressure on prices and give ordinary Australians a better chance of entering the property market.
The ‘Australian housing investment: analysis of negative gearing and CGT discount for residential property’ report was commissioned jointly by the Real Estate Institute of Australia (REIA) and the Property Council of Australia as part of an evidence-based examination into housing affordability factors.
The research finds that:
- the provision of negative gearing in conjunction with the CGT discount promotes investment in rental properties and increases supply of new housing;
- around a third of all new dwelling construction is financed by investors every year, debunking the myth that negative gearing does nothing to support housing supply;
- two thirds of property investors who benefit from negative gearing earn a taxable income of less than $80,000 a year;
- Those earning less than $80,000 a year claim the majority (58 per cent of total value losses in 2012-13);
- the 50 per cent discount on capital gains helps to ensure that purely nominal gains are not taxed and in doing so, promotes the incentive for individuals to save and invest; and
- removing negative gearing of the CGT discount altogether for property will dampen investment, diminish rental supply and make it more likely that in the short to medium term, rents and property prices will increase.
Don’t remove negative gearing
The report warns that:
‘the immediate removal of negative gearing without allowing to carry forward losses is likely to result in a portion of the average net rental loss (which was, on average, $9,500 in 2012-13 across all taxable income groups) being added to rental prices’.
Property Council of Australia Chief Executive Ken Morrison said the arguments for removing negative gearing and the CGT discount just don’t stack up.
“Negative gearing and CGT are doing all the right things when it comes to improving housing affordability for Australians,” Mr Morrison said.
“They tick all the boxes by increasing supply, giving people an opportunity to get into the housing market and helping ordinary Australians build wealth for their future.
The reality is that if negative gearing was abolished there would less investment and rents would go up.
It is time to start focusing on the real barriers to home ownership like runaway stamp duty costs which have increased by as much as 800 per cent in the last two decades.”
REIA CEO Amanda Lynch said the report debunks the most common myths around negative gearing and the CGT discount and shows the bottom line benefits delivered to supply.
“Mum and dad investors are overwhelmingly the ones who benefit most for the ability to negatively gear their property investments,” Ms Lynch said.
“This is middle Australia. 66.5% of taxpayers who earn an annual income of up to $80,000 own 80% of negatively geared properties.
This isn’t some tax lurk for the wealthy, rather an incentive for people on low to average incomes.”
And it has benefits for the broader economy, as the report notes ‘The ability for investors to gear and use debt is a crucial part of investing and fostering economic growth’.
“Tinkering with negative gearing would introduce distortions into the tax system and attack confidence, counter to the principles of simplicity and fairness we are seeking to achieve.”