March, 2018

A new report released last month by the Australian Housing and Urban Research Institute (AHURI) joins others in confirming that negative gearing is not responsible for high home prices.

The report undertakes an in-depth review of the private rental market in Australia and nine other comparable countries, considering tax and finance settings, demand and supply and regulation of landlords and tenants.

Property Council Chief Executive Ken Morrison said the report, co-authored by Chris Martin from the University of New South Wales, Kath Hulse of the the Swinburne University of Technology and the University of New South Wales’ Hal Pawson, adds to the growing body of credible research that dispels common myths around negative gearing.

“We welcome this new AHURI report which finds that Australia’s negative gearing settings are neither out of kilter with those of other comparable countries, nor are they the driver of escalating house prices across much of Australia,” Mr Morrison said.

The AHURU report recommends that policy settings and any future strategy for rental markets should consider the tax settings in combination with the availability of finance, population, and other demand levers.

Other myths debunked

To my way of thinking, the media and political commentary about negative gearing concentrate on those who appear to be directly affected – the 1.7 million Australians who have an investment property, and the estimated 1.2 million who own a negatively geared property.

Mistakenly these so-called “property moguls” are not investment bankers, internet entrepreneurs or mining magnates. Instead, the majority are everyday Australians, who have only one investment property each. The data shows they’re mostly police officers, ambulance drivers, paramedics, train and tram drivers – hardworking Australians who are trying to build wealth for their family’s future.

Tenants will be the big winners – wrong

Tenants won’t escape the fall-out. There will be fewer rental properties available as investors take their money elsewhere. Rents will rise by an estimated 10% as landlords pass on some of the extra expense. At least 70,000 additional families will be in housing stress, potentially costing the government many tens of millions of dollars in assistance.

If you’re saving a deposit for a first home, the extra rental expense will hinder your homeownership plans. This result is ironic given Labor’s plans to scupper negative gearing aim to get more people into a first home.

Owner-occupiers won’t be affected by the end of negative gearing – wrong

With investors forced to take their business elsewhere, there will be fewer properties bought and sold. And we don’t need to be economists to know if housing demand falls, prices will follow. More than 65% of Australians own their own home – and a fall in real estate values will potentially leave some people owing more than their home is worth. The banks aren’t big fans of this situation – and we may see an increase in the number of distressed sales.

More broadly, 14.8 million Australians have a stake in the property market through their super funds, which will also fall in value, noted the Property Council of Australia.

Only real estate agents will be affected – wrong

It’s not hard to see that the direct effect on the real estate industry could be disastrous, with many job losses a distinct possibility – and some businesses will close. There are 1.4 million Australians working in real estate industry, which is the nation’s biggest employer. In comparison, the mining industry employs 218,000, according to research from the Property Council, while 819,000 Australians work in manufacturing. Moreover, property contributes 13% to Australia’s GDP (the economy). The industry is worth $202.9 billion to the economy, with health the next biggest with a total value of $112.9 billion, followed by mining ($99.5 billion) and retail ($73.6 billion).

But it doesn’t end here. The Australian economy is in a fragile state and with 25% of Australians are drawing their livelihoods from the property industry including builders, plumbers, draftspeople, architects, mortgage brokers, bankers and even property journalists.

As the federal election draws nearer, the shrill of the anti-negative gearers will intensify. To maintain some perspective, be sure to take a broader lens when considering the debate, as the demise of negative gearing will have wide-ranging impacts on our local communities.