As the debate continues over negative gearing, one industry stalwart has said that the unintended consequences of scrapping negative gearing could be “quite horrific” on the housing market.
Aussie Home Loans
chief John Symond
told Australian Broker
that killing off negative gearing will cause more supply problems.
“If negative gearing is hit on the head, it will exacerbate the already housing supply shortage in the market. There will be fewer developers inclined to develop for the fear that there will be less buyers.
“It will also put more pressure on the rentals market because there will be less properties available for rent. As a result, it will force prices up – the laws of supply and demand will play a strong hand in pushing housing prices if negative gearing is abandoned.”
Saul Eslake, chief economist at Bank of America Merrill Lynch, has called on the government to scrap negative gearing or risk the continuing distortion of the housing market which is crowded with investors.
“People ask why do Australians invest so much in property and my answer is because the tax system almost says you're a mug if you don't. In the last financial year, investors borrowed $115 billion and owner-occupiers borrowed $108 billion,” he told the ABC
“So investors are a bigger share of the market for established dwellings now than owner-occupiers are.”
Symond says that negative gearing isn’t to blame for the ‘unbalance’ in the market – where there are low levels of first home buyer activity compared to high levels of investor activity.
“First home buyer activity is low because interest rates are so low, which means there is going to be more competition in the market and they are going to have to compete with more and more investors.
“I saw a recent statistic showing 80% of investors in housing are just PAYG everyday mum and dad workers just trying to invest for their superannuation in the low rate environment to set themselves up for later years.”
However, although Symond doesn’t believe that negative gearing should be canned, he says there may be scope for revising the rules.
“It would take a brave government to hit negative gearing on the head, but there could be an argument that negative gearing can be tweaked. There could be a robust argument for putting a ceiling limit on negative gearing or restrict it to certain borrowers, but not for scrapping it altogether. That would cause havoc in the housing market going forward,” he told Australian Broker