Negative Gearing – Understanding of the Facts Is Required

By Jock Kreitals, Acting Chief Executive Officer, the Real Estate Institute of Australia

It is clear that housing affordability and taxation arrangements for housing are going to be key issues in the upcoming Federal election campaign and REIA hopes the debate will be based on rationale thinking and not perpetuating myths that simply do not hold up to analysis.

The current tax arrangements, in treating property no differently to other forms of investment, provides an incentive for private investment which increases supply for our growing population, keep rents affordable and eases the burden on social housing.

With large increases in house prices in Australia’s two largest capital cities, there have been many claims that the current tax treatment of negative gearing and capital gains of residential property is exacerbating housing affordability issues. This is simply not the case. Indeed the public interest is being served and advanced through the current taxation arrangements.

The current taxation arrangements provide many Australians with the opportunity to invest in property and augment their savings in particular their retirement savings and at the same time improve rental affordability through an increased supply of rental housing.

There is a wealth of research that shows that negative gearing and the CGT discount are not driving excessive, unproductive and speculative investment in housing but instead they are adding to housing supply with currently $7 billion a year invested in new dwellings.

An example of this is the Henry tax review, initiated by the current Opposition when they were in Government and its recommendations and findings released in 2010, which recognised that the current tax arrangements placed downward pressure on rents.

It is supply that is the critical factor in resolving the affordability problem. Changes to current taxation arrangements will do nothing to address affordability. If anything, they will exacerbate the problem.