Extraordinary property prices have put pressure on politicians to take action on housing affordability, with stripping the negative gearing tax concession considered one of the simplest and most effective options to drive down prices and open up the market to millennials.
Federal Labor is currently pushing to scrap the controversial tax concession, which Paul Keating did as treasurer in the 1980s, only to have it reinstated by then prime minister Bob Hawke a short time later.
While property investors clearly see the merit of negative gearing, a recent study presented at a Reserve Bank conference found nearly 75% of households could take ownership of their homes even if the policy was axed. Eliminating the negative gearing would also “lead to an overall welfare gain of 1.5% for the Australian economy in which 76% of households become better off”.
That study, which argues increases in rent could be more than offset by increased government transfers coming from more tax revenue, suggest the winners of removing negative gearing would be “renters and owner-occupiers” but “landlords, especially young with high earning landlords, lose”. This is in agreement with the Treasury’s assessment that “negative gearing benefits high income families” and that the capital gains tax discount “overwhelmingly benefits high income families”.
The simple fact here is though, with negative gearing being abolished, rental prices go up. With rental pricing going up, one might expect it harder to save. Despite evidence from both sides on who really will benefit/or not, it’s clear it’s likely going to be a slippery slope for all involved.
So what are the odds of Negative Gearing being scrapped?
Now one might argue it’s about time many of us finally get our chance to enter the property market. However, in reality we may just be one in 100,000 people who successfully become home buyers in any given year. On the contrary, there are over two million people who own at least one investment property and the last thing they want to see a government do is make housing cheaper and more affordable for people who don’t currently own housing. As Economist Saul Eslake put it last night on The ABC, “Even the least intelligent of our politicians can do that math: 100,000 people who want cheaper housing versus two million people who want housing to get more expensive. (Essentially), it would be the dumbest political decision possible”