Basso First National Real Estate May Update – Negative Gearing
There’s a significant debate going on about negative gearing right now. You might be tempted to think it doesn’t affect you, but read on..
The Australian Labor party is going to the federal election with a risky housing tax policy that will exacerbate already falling house prices, force up rents and threaten the broader economy says First National Real Estate’s chief executive, Ray Ellis.
“Labor’s strategy to halve the capital gains tax discount and restrict negative gearing to new properties ignores current economic reality and is misleading Australians about who would really benefit’ says Mr. Ellis.
Under Labor’s plan
Property investors wishing to buy older style properties will be prevented from claiming interest payments against their incomes, and the capital gains tax break they currently receive would be halved.
Between 1985 and 1987, the Hawke / Keating Government experimented with the removal of negative gearing and rents increased sharply, nationwide.
Rents for three-bedroom homes in Sydney rose by 43%, housing commencements fell in every state, and rents increased nationally by an average of 22%.
Shorten Labor Government plans to abolish negative gearing as we know it and 9% fewer investment properties are expected to be bought.
That means there will be fewer vacancies when you next move and rents will have become significantly more expensive.
Current taxation arrangements have delivered the lowest rent increases since 1995 so it doesn’t make sense to change policy now, especially during a housing downturn.
Changing negative gearing just doesn’t make any sense.
A Property Council of Australia survey has shown that nine percent fewer investors will be prepared to buy new properties if Labor’s proposed crackdown on negative gearing is implemented.
‘If Labor wants to treat property investing differently from all other forms of investment, it’s ordinary Australians that will pay the price’ says Mr. Ellis.
Many will no longer be in a position to access the kinds of tax benefits they currently enjoy; fewer rental properties will be bought, rents will go up, house prices will fall, and negative gearing benefits will be restricted to top end of town – share brokers and bankers who negatively gear shares.
When Paul Keating experimented with negative gearing in the mid-1980s, rents increased and the changed policy was ultimately dropped. And for anyone thinking things will be different now, The Centre for International Economics recently confirmed that its modeling shows rents will rise, and that will, of course, be a direct hit on young Australians saving to buy their first home’ says Mr. Ellis.
The scrapping negative gearing will have negative impacts. Two-thirds of Australians with incomes under $80,000 use negative gearing to save for their futures, not the top end of town as voters are being led to believe.
SQM Research director Louis Christopher also predicts undesirable potential outcomes, suggesting that Labor’s housing tax policy could trip our economy into recession, with the policy exacerbating already falling house prices and causing them to fall further – a capital city weighted average of between 5% and 12%.
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