Government inquiry fails to settle negative gearing debate

The final report of the Senate Economics References Committee’s affordable housing inquiry said negative gearing was one of the most contentious issues raised during the inquiry.

The committee said that it was unable to clearly determine what effect negative gearing has on rental affordability.

However, most witnesses who discussed the issue challenged the idea that negative gearing helps contain rents, and some also argued that it actually serves to undermine the availability of affordable rental stock.

The committee accepted that negative gearing likely encourages higher levels of investment in residential housing than would be the case if it did not exist in its current form.

“This, in turn, likely has a detrimental effect on home purchase affordability,” it said.

The committee said it was disappointed the Treasury couldn’t quantify the effect of negative gearing arrangements on housing prices, or provide clear guidance on the relationship between negative gearing and rental affordability.

It therefore called for a review of how negative gearing and the 50 per cent capital gains tax (CGT) discount affect property prices and the rental market.

“This assessment should include the cost to revenue of negative gearing and the CGT discount, and what impact, if any, these arrangements have on economic productivity,” it said.

“The committee has also concluded that it would be useful for the Treasury to provide a comprehensive assessment of the effect on purchase and rental affordability of various possible changes to the taxation treatment of investment housing.”

LJ Hooker chief executive Grant Harrod said negative gearing has been very successful in increasing the availability of rental accommodation.

“By tinkering with negative gearing the government is attempting to slow down the demand for property, essentially ignoring the greater issue of supply,” he said.

“We have had an undersupply of properties across the majority of capital city markets over the past decade and what the government needs to do is bring in policies that address supply constraints.”