'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.


  • by Rex 30/03/2016 9:14:03 AM

    I'm not too sure how they propose a vacant property's losses can be offset against taxable income, or to use the erroneous term - 'negatively gearedf'.
    If the property's are not available for rent and/or rented at close to market rates, they are not an investment and the ATO will regard it as non-deductible. Any accountant who sends those figures to the ATO better keep a close eye out for their future audit. And the tax payer better prepare for the tax payment plus penalties.
    It5 is an easy resolution to the whole debate. The ATO allows deductibility for investment [business, shares, property, etc] with the intention of generating a profit from the activity. If not prospect of revenue/profit the ATO can simply disallow. Remember the swathe of MIS [et al] that were bulldozed by the ATO?
    So if properties are vacant and being held for the benefit of capital growth, that's a business/investments/speculative decision and has nothing to do with the potential for tax deductibility.
    Using that argument, anyone buying shares for the potential future increase in share price, rather than the available dividends, is merely forcing the price of equities up and inflating the market.

    No one would do that would they??

  • by SEQ Broker 1/04/2016 10:19:20 AM

    If there is a period of time when sometimes someone buys vacant land for the purpose of building on as a place for them to live but they have not yet got their construction in order /ready to go. The government wants to charge investment rates on stamp duty for the purchase. the government believes unoccupied property is an investment clearly.