Our economy needs negative gearing, says franchise head

by Julia Corderoy17 Jul 2015
The head of major mortgage franchise Mortgage Choice has defended the importance of negative gearing, after the Reserve Bank of Australia called for the controversial tax break to be reviewed.

In a submission to the parliamentary inquiry into home ownership, the RBA questioned the role of negative gearing in fuelling speculative property investment and creating risks in the housing and mortgage markets.

However, Mortgage Choice CEO John Flavell says negative gearing plays an important role in sustaining the strength of the Australian economy.

“At Mortgage Choice, we think negative gearing plays an important role in the property market. The tax benefits associated with negative gearing helps to make property investment more attractive to some Australians, and given that the success and strength of the housing market is critical to the ongoing health of the Australian economy, it doesn’t make sense to consider removing any initiatives that help this market,” he said.

But instead of placing the emphasis on negative gearing and the impact it has on the property market, Flavell says there needs to be more effort and emphasis on making it easier for first home buyers.

“It would be great to see first home owners receiving similar tax concessions as investors – as we believe this would encourage a lot more first buyers into the market. If we want to improve housing affordability and help more first home buyers into the market, we have to pull on the right levers.

“Housing affordability is a function of property prices, income levels, the cost of and access to credit as well as supply of rental accommodation. To have a positive impact on affordability, drive up the instances of home ownership and reduce rental burden, all of these levers need to be considered and used.”
 

COMMENTS

  • by Neil Williams 17/07/2015 10:24:41 AM

    Negative gearing a benefit to only the wealthy? How many people do we all know - friends, family, associates - who could easily afford an investment property or two, but do not acquire one for fear of making a bad investment. Seems the "brave" among us who seek to become financially independent could be the most heavily penalised.

  • by BJ 20/07/2015 12:03:14 PM

    Naughty, naughty RBA for suggesting any review on negative gearing, but thankfully the Cop on the beat, Mortgage Choice, is all over things "We Think".

  • by richard butler 1/08/2015 4:02:46 PM

    I rember when they removed negative gearing and the whole country felt it hope you enjoy this read into what happened i belive john favil is correct in his statement and belive history can repeat it self if you want to kill the real estate market in Australia open pandoras box by removeing Negative gearing,

    By Gavin Putland, cross-posted from the Land Values Research Group:

    The McKell Institute’s report on negative gearing (Richard Holden, Switching Gears, June 2015) concluded that negative gearing for future investors should be allowed only for new homes. I have been pushing that idea since 2003. But the McKell report, in its account of the Hawke-Keating government’s brief quarantining of negative gearing (based on contemporary reports in the Sydney Morning Herald and the Sun-Herald), reveals that the idea dates back at least as far as 1987. I quote from pp.21–22:

    Treasurer Paul Keating insisted at the time that the overwhelming factor deterring potential investors was high interest rates, needed to counter high inflation. By December 1986, the interest rate on loans to building societies had reached 15.5%, with NSW particularly hard hit, as new dwelling commencements decline [sic] by some 28% on the previous year.

    By February 1987, the Real Estate Institute (REI) of NSW joined the HIA in blaming [disallowance of] negative gearing for contributing to a “rental crisis” in Sydney. …

    In March, the Master Builders Federation of Australia released figures showing that Sydney rental prices had skyrocketed by 25% in the previous 12 months. …

    By April, BIS Shrapnel released data showing that the level of new dwelling constructions had plummeted to a 10 year low….

    By June 1987, the Liberal Party announced that if elected, it would replace Labor’s prohibition of negative gearing on rental properties with a system allowing deductions from taxable income on interest incurred on borrowings up to 80 per cent of the value of the rental property.

    This received immediate support from the Confederation of Australian Industry (CAI) and the NSW REI, but was sternly criticized by the Tenants Union (TU) of NSW.

    TU spokesman Tracy Goulding… argued that “These taxes aren’t directly responsible for the housing crisis. The rental crisis is an ongoing thing…”

    Nevertheless, the Coalition began to ramp up its attacks on negative gearing as contributing to higher rental prices and longer public housing waiting lists. …

    In August, the NSW REI released new figures which showed that Sydney rental prices had increased by 66% in the previous 12 months…