If negative gearing is abolished on all but newly-built dwellings, renters will be hit hard.
If landlords lose the ability to write off losses on investment properties, and current rents don’t cover the mortgages and other costs they incur, they will have to increase them until they do.
In Sydney and Melbourne, where much of the investor activity has been focused, the rise in rents in the past twelve months has been 2.3% and 1.4% respectively: the lowest annual increase since June 2006.
Should current taxation arrangements for property be changed, as many are suggesting, rents can be expected to rise substantially.
Because the incentive to buy property to rent out will be severely curtailed, fewer people will buy residential investments, meaning the supply of rental stock will contract: fewer houses means higher rents charged to those who don’t own their own homes.
Australia is already facing uncertain times today, even without the threat of a massive hit to its economy from a policy like axing negative gearing: if a recession comes and there are fewer rental properties on the market, rents will be pushed even higher as those who sell their houses after they lose their jobs compete with existing renters for homes.
As median rents are already far higher in 2016 than they were 30 years ago, steep rises in rents could push an additional 70,000 households into rental accommodation stress – and there’s no guarantee that many of those won’t end up living on the street.
For those who can afford to stay in their rented homes but hope one day to buy houses of their own, the additional costs might just put the dream of home ownership beyond their reach for good.
Some people believe that abolishing negative gearing will make it easier for many young Australians to buy their first home but the reality is that it will do the exact opposite.
Even if property prices fall – which they almost certainly will – and that’s unforgivable.
It just doesn’t make sense.
Negative gearing affects everyone. Why risk so much right now?
Authorised by Jock Kreitals, 16 Thesiger Court, Deakin ACT 2600
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