Time to pop the negative gearing bubble? Have your say 12



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Have you ever stopped to wonder what would happen if the government banned – yes, banned – negative gearing. It seems almost unimaginable considering how that nation’s entire investment and commercial property marketplace is built on tax deductible debt, yet this morning we are reading that the Reserve Bank of Australia is urging the Government to consider its future. That means, people would not be able to deduct expenses from their property that exceed the income.

Negative gearing is done to stimulate investment and stimulate is what it is doing is what it is doing here in Australia right now. By allowing people to deduct their negative expenses from their personal income, it encourages them to focus on long term capital returns of investment over the short term fluctuations of cyclical property revenue. And each time the heady winds of property investment catch hold and prices start charging forth we see those who are uncomfortable about the boom start to cry about how negative gearing is driving it.

But you ask yourself, without negative gearing where would the rental market in our country be? If you stop and read the property papers, undersupply has until recently been the big word in property. Chinese investment has underpinned an apartment boom that is not necessarily driven on gearing in Australia. Our love for bricks and mortar in our country is long and strong. Despite being cyclical, Australians always seem to come back to property as their primary asset choice, and with negative gearing it is attractive to many in the middle income brackets. But it is gradually becoming more and more unaffordable. In fact, today, housing prices are indeed so high that people need to be able to bridge the gap of owning an asset by being able to deduct their losses… don’t they?

The Reserve Bank thinks not. They have lodged a submission with the Parliamentary Enquiry on home ownership this week that pushes our nation to address the investor-led surge in property prices that the Reserve Bank Governor Glenn Stevens says is now “crazy” in Sydney.

“The Bank believes that there is a case for reviewing negative gearing, but not in isolation. Its interaction with other aspects of the tax system should be taken in to account,” the RBA told a parliamentary inquiry on home ownership.

According to the Sydney Morning Herald today, the RBA said that being able to deduct legitimate expenses incurred while earning an income was an “important principle in Australia’s taxation system, and interest payments are no exception to this.”

If being able to negatively gear meant that landlords accepted lower rental returns, the policy may be helpful for housing affordability for renters, it said.

However, it also said that when combined with the 50 per cent discount investors receive on capital gains, negative gearing “may have the effect of encouraging leveraged investment in property.”

But in true form, Treasurer Joe Hockey has ruled out action on negative gearing refusing to bite the hand that feeds his government.  Meanwhile the Labor party have come out this week and placed their policy under “review”, perhaps looking to score points from those who cannot afford to leverage it.

Readers here have been through several property cycles in their lives, and have seen heady days come and go without government popping the gearing bubble, even when they have gone on far longer than people were comfortable. But it leads us to the question – do you think the Government should attempt to pop the bubble this time or let free markets reign?


Rebecca Wilson

Rebecca Wilson is the founder and publisher of Starts at Sixty. The daughter of two baby boomers, she has built the online community for over 60s by listening carefully to the issues and seeking out answers, insights and information for over 60s throughout Australia. Rebecca is an experienced marketer, a trained journalist and has a degree in politics. A mother of 3, she passionately facilitates and leads our over 60s community, bringing the community opinions, needs and interests to the fore and making Starts at Sixty a fun place to be.

  1. Even if they stop negative gearing it won’t help Australians , the Government will just let more Chinese come in and buy our homes, They are buying up Australia by stealth now

  2. If they stopped it, house prices would plummet as investors would pull out in droves. Therefore, rents would skyrocket. Remember that negative gearing has another side – when the property is sold Capital Gains Tax is paid at the taxpayers marginal tax rates.

  3. We did negative gearing on an investment property and ended up losing $200,000. And the renters ripped us off. So time to stop it.

  4. The sole argument against negative gearing seems to be that it will increase tax revenue (so the government can squander even more?). However, getting rid of NG will reduce available rental properties, have no impact on prices of housing, increase rental costs and impact on many people who feed off negatively geared investments eg, accountants doing annual tax returns, property managers. A better approach would be to limit the number of properties from which an investor can claim tax or cap the limit on how much tax relief investors can get.

    2 REPLY
    • Is the above comment the first communication earth has received from Pluto, as these comments must come from someone on another planet. If a person and or Property Trust has sufficient money to invest in residential real estate as a profitable tax paying property investment why stop them.
      Negative Gearing is a product of our bad tax system.
      The government should do what they did with capital gains and make an announcement that Negative Gearing will not apply to all property contracts entered into after the date of the announcement. This means that people who have entered into negative gearing arrangements will not be penalised but there will be no more negative gearing allowed.
      Negative gearing is a cost to the budget plus it pushes up property prices

  5. Limit the number of properties that can be used for negative gearing but dont stop it as rents will only increase.

  6. They tried it some years ago and the rental shortage was diabolical. People were auctioning rental properties. Just when developers were creating jobs for people by building new properties, some jerk decides to reinvent e wheel

  7. If negative gearing were to go, rent in some areas may rise as owners sell property and housing availability reduces. In such a market people offer more than the requested rent to secure somewhere to live and rents could soar. House prices may reduce. This may be good for home buyers but leave others in houses of less value than the money owed. The benefit may be less than the negative.

  8. Of course, horse-faced, cigar-chompingt Hockey won’t take the bait because his WIFE is one of these ripping 0ff investors AND Hockey uses his taxpayer/taxfree expense account to pay HER mortagages!!!! THAT is what the RBA should be investigating…plus Abbott and ALL his clan who are ripping us all off with their dispicable gold-plated HUGE pensions for what??? a very few years of being in office but NOT for any actual contribution to society!!!

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