Scrapping negative gearing is not the answer, says lender

by Julia Corderoy01 Apr 2015
Negative gearing requires crucial reform to help first homebuyers, according to a South Australian lender, but abolishing it is not the answer.

Following the release of the federal government’s tax discussion paper this week, HomeStart Finance – a lender backed by the South Australian government – said the discussion paper provided an important opportunity to explore how elements of the tax system were impacting on housing supply and demand.

HomeStart’s chief executive John Oliver admits there is a strong case to be made for abolishing negative gearing. 

“The benefits of negative gearing, in particular, makes property a very appealing option for investors. It would be difficult to argue that is hasn’t had some impact on driving up property prices and making it harder for first homebuyers to break into the market,” he said.

“Research has shown that start-up costs are one of the biggest barriers to home ownership. It is very difficult for a first homebuyer to compete in a market against investors who have significant backing in the form of assets and equity.”

However, Oliver says abolishing negative gearing altogether could have other implications on the property market.

“As with any decisions on housing, they need to be made with balance. There is a risk that modifying CGT or negative gearing benefits would impact on the supply of rental properties in the market. This may push up rents and make housing even more unaffordable for many renters,” he said.

According to Oliver, the solution lies within smart reform to negative gearing, rather than abolishing it altogether.

“The solution may lie somewhere in between, where negative gearing isn’t scrapped entirely but is modified in some way to make buying a home as an investment less appealing. This may achieve a middle ground where there is sufficient investor activity in the housing market balanced with a clear pathway into home ownership for first homebuyers.”
 

COMMENTS

  • by Bottom Line 1/04/2015 10:18:28 AM

    Ridiculous. Any watering down will cripple the only industry that's keeping us out of recession - the building industry.
    Suddenly few houses will be available & governments will need to 'levy' to raise money to build their own housing - which they cant afford.

    Abolish Stamp Duty for all first home buyers, or require them to only have a 2% deposit, would get the result without crippling the economy.

    Govt could back the loans, rather than incur Genworth or QBE... etc.

  • by Melbournian 1/04/2015 11:35:03 AM

    Support only abolish NG on existing home, but keeping NG for new or off-plan homes. It will create jobs, as well as provide additional house supplies

  • by Steve 1/04/2015 7:10:54 PM

    “Research has shown that start-up costs are one of the biggest barriers to home ownership. It is very difficult for a first homebuyer to compete in a market against investors who have significant backing in the form of assets and equity.”

    Removing or altering negative gearing will not change the amount of start up costs that are a barrier to home ownership. Negative gearing only helps an investor with servicing the running costs of the investment, which is no different to what is available with other investments or business.