'Lunacy' negative gearing distorting Sydney housing market: Report

by AB30 Mar 2016
Sydney’s housing affordability crisis is being artificially exacerbated by “lunacy” tax incentives, a new report has claimed.

According to the analysis by the UNSW's City Futures Research Centre, up to 90,000 properties are sitting empty in some of Sydney’s most sought-after suburbs as investors chase capital gains over rental returns.

The analysis’ researchers, Professor Bill Randolph and Dr Laurence Troy, said this is thanks to the "perverse outcomes" of tax incentives such as negative gearing, Fairfax has reported. 

“Leaving housing empty is both profitable and subsidised by government," Randolph and Troy told Fairfax

"This is taxation lunacy and a national scandal."

According to Fairfax, the 2011 census revealed that in Sydney's “emptiest” neighbourhood of the CBD, Haymarket and The Rocks, one in seven dwellings was vacant.

Close behind were Manly-Fairlight, Potts Point-Woolloomooloo, Darlinghurst and Neutral Bay-Kirribilli, which all had vacancy levels above 13%. These neighbourhoods, together with central Sydney, account for nearly 7,200 empty homes.

The UNSW analysis of the 90,000 unoccupied dwellings across metropolitan Sydney compared the number of empty homes in a suburb against the rate of return investors made by renting out a property.

It found that properties in neighbourhoods with lower rental yields and higher expected capital gains were more likely to be unoccupied.

Gordon-Killara on the north shore had the highest share of vacant apartments, with more than one in six unoccupied on Census night, according to Fairfax. By contrast, only one in 42 dwellings (2.4%) in Green Valley-Cecil Hills, in Sydney's west, was unoccupied.

These results suggest property investors in some of Sydney's most desirable areas have become indifferent to whether their investment property is rented or not. Instead, investors are chasing capital gains with rental losses offset by negative gearing and capital gains concessions. 

According to Troy and Randolph, this calls into question Sydney’s housing supply and affordability problem.

“If you choose to accept that there is a housing shortage in Sydney, then the sheer scale and location of these figures strongly suggest that this is an artificially produced scarcity,” they said, according to Fairfax.