Is it time to scrap negative gearing?

by Julia Corderoy17 Jul 2014
It is no secret that first home buyer demand is at an all-time low. It is also no secret that the cost of owning a home is becoming increasingly less affordable.
The Financial Systems Inquiry (FSI) has posed the question of whether it is time to re-think the tax treatment of investor housing, as negative gearing “tends to encourage leveraged and speculative investment in housing.”
The arrangement was put in place in an attempt to boost Australia’s housing stock, however it just put pressure on existing house prices, according to a leading think tank.
“Our research showed that 5% of money lent for housing investment went to building new housing. Nearly all of it went to bidding up the prices of existing houses.” Paul Donegan, Senior Associate at the Grattan Institute said.
So as investors took advantage of the scheme, investor demand went up – forcing prices up and first home buyer demand down.
“Tax concessions investors benefit from were seen as able to outbid prospective first home buyers at increasing levels.” Donegan said.


  • by Alex SA 17/07/2014 10:03:37 AM

    What will happen to the construction industry if negative gearing was scrapped & how many borrowers would end up with negative equity in their homes? One small issue forgotten in this argument is the Banks still pay taxes on the income from their investment loans. Getting totally sick of one sided arguments being bashed by every Tom, Dick & Harry without taking a balanced view. What's more frightening is there appears to be a whole raft of advisors? with limited knowledge of the issues they discuss. Perhaps some of these experts should get off their cushy rear ends & find a proper job, i.e. go into business.

  • by QEDRisk 17/07/2014 10:06:29 AM

    Commentators treat "negative gearing" like it's some kind of magical gift to wealthy investors. It is merely the act of weighing up your costs vs your income! Scrapping negative gearing is tantamount to saying all businesses should not be able to claim expenses and must pay tax on revenue alone. Uneducated piffle.

  • by John from Geelong 17/07/2014 10:14:09 AM

    Negative gearing has been with us for a generation now and has served to compress 60 years' price growth into 30 years. It has to be unwound over the next generation but Government has to have the cojones to ride the adverse pressure that will occur at the outset.

    Many of us have our wealth tied up in property and the suggestion that we will not see our investment decisions perform so well in the future is difficult, but less so than creating a generation who can't compete in the market.

    I would like to see a more level playing field where owner occupiers and investors can compete evenly. This would include indexation of stamp duty that costs a ridiculous proportion of the cost of acquisition compared with 50 years ago when the scales were introduced (here in Victoria).

    It is hard to see any government having the courage because they rely so heavily for funds on the trade of property.

    I don't have an easy answer.