Elite Agent

Negative Gearing: A Balancing Act

Bruce Oliver from Xynergy Realty in Melbourne says that while negative gearing doesn’t necessarily help the affordability for first home-owners, it cannot be scrapped completely.

The contentious topic of negative gearing is one that doesn’t seem to disappear, with the biggest question being what to do with negative gearing where housing affordability is an issue that is affecting many.

It’s a concept that people either love or hate, and it’s a tough balancing act, but it’s also something that needs to be addressed sooner rather than later.

One thing to keep in mind is that any negative gearing changes will affect the whole country as it lies with Federal powers, despite housing affordability only being an issue in some states.

The government mustn’t greatly cause house prices to drop in places where they are currently stable and affordable, nor let affordability spiral even more out of control in Sydney and Melbourne.

Recently, house price growth has slowed, however, it is still on the rise, meaning the government needs to make changes – but with caution.

It can’t be scrapped completely.

We know from the past that negative gearing does affect the property market, as we have seen when the Hawke government abolished negative gearing as we know it for a short period of time.

It’s a fine line that can easily break and we shouldn’t stray too far from the centre, where things are currently sitting.

If negative gearing were abolished, those with investment properties may no longer see the value in it, if it isn’t having a positive impact on their income.

The likelihood of negative gearing being completely removed is very slim, given that it benefits most of our decision makers in parliament. With politicians generally being wealthier members of society, they own a significant amount of property.

An ABC investigation from 2017 found Federal politicians own 2.4 properties each on average, while the 2016 census revealed that people renting is on the rise and home ownership on the decline.

On saying this, sustainability in house prices needs to be obtained, in spite of some people wanting to increase their wealth with rising prices.

How should it be changed?

Too much can’t be taken away from the current negative gearing regulations. Many people have already purchased investment properties and taken out loans assuming that they are able to negative gear the property.

Also, things that are claimed such as maintenance shouldn’t be removed. If people are not able to claim this as part of a tax deduction, they will be less inclined to keep the property maintained.

This could reduce property prices further if neighbourhoods are run-down and derelict, however, making cuts in certain areas is better than removing the concept in its entirety.

Greater negative gearing benefits should be placed on new and off-the-plan properties compared to existing homes to encourage an increase in housing supply. Investors should be promoting the build of new homes and this will simultaneously offset the rising house prices for others.

Finding the right balance is complicated but if the target is hit, there can be benefits.

If the right amount is taken from negative gearing, it will increase income tax revenue that the government can put back into other initiatives. It can also create more sustainable house prices in major cities and alleviate the stress felt from first-home buyers.

My advice is that the government should test the water and start implementing small changes sooner rather than later. Yes investors will lose out slightly, but it’s time to rectify the affordability crisis and allow younger Australians to reach the Australian dream: owning their own home to live in.

Bruce Oliver is the co-founder of Xynergy Realty, a Melbourne-based real estate agency.

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