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The Albanese government’s intentions around negative gearing have entered the spotlight as of late following the Australian Greens Party moving to delay the vote on Labor’s Help to Buy bill.
The Greens blocked the vote and delayed it until November and said they would only allow the vote to pass should negative gearing be scrapped altogether.
In response, the Albanese government confirmed that they are looking into potential changes to negative gearing and capital gains tax (CGT), with Treasurer Jim Chalmers saying during a press conference last week (25 September) that “Treasury looks at all kinds of policy options all of the time.”
“It’s not unusual for the public service – and in my case, my department, and I’m sure [Katy Gallagher’s] department is the same – to examine issues that are being speculated about in the public or in the Parliament. That’s how a good public service operates,” Treasurer Chalmers said.
Treasurer Chalmers lambasted the Greens and the Coalition for delaying the vote: “If our political opponents cared about housing, they would vote for our policies in the Senate.
“Instead, in their usual, characteristically destructive way, both the Greens and the Coalition are teaming up to prevent more homes being built. Building more homes is the best way to ensure that people can find a home to rent or buy.”
The consequences – who wins and who loses?
The government considering changes to negative gearing has sparked concerns over how this will ultimately impact investor behaviour and the housing crisis at large.
Antonia Mercorella, CEO of the Real Estate Institute of Queensland (REIQ), said repeated studies have shown that there is a “minimal link between negative gearing and higher house prices”.
“To make a major change to the rental sector during a time of low vacancy rates across Australia and long social housing waitlists could be catastrophic for the housing sector,” Mercorella said.
“It would be unwise for the Federal Government to seek to eliminate what is essentially a straightforward tax deduction for property investors.
“Abolishing negative gearing would eliminate a range of economic benefits, fail to tackle housing affordability, and impact everyday Australians the hardest.”
Speaking to Broker Daily, CoreLogic’s head of research Eliza Owen said that it is “difficult to assess the impact” that abolishing negative gearing could have on the market.
“At the moment, high interest rates, and low rent yields (3.7 per cent) mean that the removal of negative gearing could take a lot of demand out of the housing market, especially since investor demand seems to be driving a significant part of the current cycle (making up 38 per cent of new housing finance),” Owen said.
“In the short term the removal of negative gearing could lower property prices which would be good for first home buyers, but it could stem the flow of new housing supply for apartments in particular.”
Owen said that the combination of a generous CGT discount and the ability to deduct rental property losses from taxable income “could be modified in a move to a more equitable system”; however, there’s a “hard balance to strike” in the outcome for investors, renters, and potential home buyers.
She said: “With the large majority of rental housing owned by private investors, a removal or winding back of investment incentives could impact the supply of rental housing. Alternative mechanisms for ensuring adequate rental supply should be part of any property-related tax reform.
“The alternatives all have their own price tag and could include increased levels of government-owned rental housing, increased funding for social and community housing, or enabling the build-to-rent sector via earlier proposals aimed [at] improving taxation policies with regards to withholding tax and depreciation benefits.”
Effie Nicol, mortgage broker and branch principal of Yellow Brick Road, Earlwood, said she has concerns over property investment becoming less appealing due to the reduced tax benefits.
“This could lead some investors to raise rents to offset the loss, impacting everyday Australians,” Nicol said.
“It may also negatively affect those who rely on current negative gearing deductions to maintain their investment properties, making it harder to manage their finances and potentially forcing them to consider selling.
“Additionally, investors who have purchased but haven’t yet settled could miss out on claiming their deductions.”
However, Nicol told Broker Daily that scrapping negative gearing could create more opportunities for first-time home buyers due to reduced competition from investors.
“Overall, while it may help first-time buyers, it could drive up rental costs and place financial strain on existing investors,” she said.
Director of Tesoro Financial, Jack Punch, held a similar sentiment to Nicol, saying that first home buyers may have an easier chance of getting in the door; however, both investors and renters will lose out.
“Negative gearing was proposed to incentivise people to invest in property as a tax payable offset, without [it], investors won’t be as incentivised to buy property. There is a housing shortage and without investors, the only people buying and building will be owner-occupiers – a lot of whom can’t afford to buy,” Punch said.
Punch said that this would result in no new houses, higher homeless rates, and suffering immigration.
He further told Broker Daily that investors may sell down portfolios, resulting in an increase in supply and a decrease in house prices, but it would be likely that investors would increase rental prices to cover the tax burden of not having income offset.
“By canning it altogether, someone loses. At the moment it’s the ATO losing out on people legally minimising tax payable on their income due to NG. If NG is taken away, the ATO gets a win as they’ll receive more tax on income,” Punch said.
“An effective control would be to not abolish completely but to affect the negative gearing on one/two investment properties and all investment properties held after that would have no negative gearing component to them. This way investors will still be buying but not over indulging and everyone wins.”
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