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.