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.”