As a property investor, it’s likely you would not be too keen on the suggestion from NSW labor leader John Robertson that Australians should engage in a debate about the “effect” that negative gearing is having on our property markets.
Despite Robertson’s concerns that negative gearing is potentially driving house prices up and adding to the affordability issues facing new generations of first home buyers, Treasurer Wayne Swan has assured investors that the government has no intention of altering present tax arrangements.
In an interview on Sky News, Robertson said, “Everyone, I think, is concerned about how their kids are going to buy a house, how they’re going to get into it.”
“In many circumstances, these are people who’ve got two or three investment properties and there’s no real appreciation of what negative gearing is doing in terms of putting pressure on housing prices for their kids to get their first foot in the door.”
A Property Observer reports that according to figures from the Australian Tax Office, approximately 1.7 million property owners used negative gearing to claim a net rental loss of $6.5 billion for the 2010/2011 financial year.
Among Robertson’s supporters is chief executive of the Australian Council of Social Service, Cassandra Goldie.
She claims that a report produced by the McKell Institute entitled Homes for All, highlights that “negative gearing is at the heart of the problem with inflating house prices” and therefore is a potential area of reform to address the ongoing affordability crisis.
Speaking on Channel 10’s Meet the Press, Goldie said, “We’ve got a crisis here so let’s have a little bit of courage to deal with it.”
Negative gearing has long been used by property investors to secure high growth property, while at the same time reducing their tax bill by claiming the loss that often results in acquiring this type of asset as a deduction.
But according to the McKell Institute tax reform, with federal and state government policies that favour an increase in housing supply to meet the growing demand and in turn, address the ongoing dwelling shortage in Australia, needs to be considered.
The report says, “all politicians of all parties recognise that negative gearing and untaxed capital gains add wealth to existing home owners to leverage for second homes and investment properties without any evidence that they increase overall supply significantly; and that increasing effective housing demand in a constrained housing supply results in an increase in house price inflation and in problems of affordability for those seeking to buy”.
In other words, the finger is pointed squarely at property investors who leverage off their own home to purchase more investments for their portfolio in a bid to self fund their retirement.
“Tax exemptions such as negative gearing have allowed many people to purchase second, third or even more properties”, says the McKell report.
“In the past, these may have supported the rental market, but in a market where supply is constrained it simply increases the price of housing for everyone.”
So what is their idea for a solution to this apparent problem?
Basically, the institute says consideration should be given to “phasing out of negative gearing over the long term in relation to existing properties but perhaps retained for new properties to stimulate supply”.
But isn’t this simply an argument that allows the state and federal governments to slink away from their responsibilities with regard to the affordability issues facing young Australians?
What about the reams of red tape that developers face when attempting to create more supply? Or the restrictive cost of things like land tax that makes potential developers think twice about laying the foundations for new residential housing?
Not to mention the cost of living that seems to be increasing at breakneck speed!
Investors who use negative gearing strategies actually increase the supply of much needed rental accommodation and help to sustain Australia’s property market.
They also aim to create a high growth portfolio that allows them to be financially self-sufficient once they cease work, thereby easing the government (and taxpayer) burden of increasing pension costs.
I think its high time we stop trying to “fix” the so-called affordability crisis with knee-jerk solutions that potentially penalize investors and start looking to our government for real, long term answers.
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.