There’s been a lot of discussion over recent months about negative gearing since The Labor Party raised it as a policy issue going into the 2016 election.
In all of the static since, not a great deal has been said about the fact that we’ve been down this road before.
In 1985 The Labor Government of Bob Hawke abolished negative gearing but the effect was so destabilising to housing affordability and therefore rents, that only 2 years later in 1987, they had to reinstate it.
In a nutshell a negatively geared property costs more to keep than it earns in rent. These losses can then be offset against other forms of income
Schools of thought range of leave it alone through to allow for negative gearing on only new housing stock so as to create the incentive for builders and developers to build and develop through to applying it only on existing housing stock.
Those against believe that that it’s a tax break for rich people but this ignores the fact that a lot of people, who by any measure wouldn’t be described or regarded as rich, negatively gear a second and even a third property. It’s an investment for their future. It is their superannuation for their retirement years which also has the effect of taking them off or minimising their pension dependency.
Either way the market will flock to where it sees the best return on investment.
Some argue that if you leave it as it is you have more cashed up foreign buyers pushing up prices.
On the other hand if negative gearing is abolished, as it was in 1985, there will eventually be a housing shortage as the incentive is not there for the builders and developers.
Market forces will dictate as they did then, an increase in housing prices and therefore increased rent. Its basic supply and demand.
In my view it doesn’t have to be an either/or argument.
If it’s good enough for those with established assets to negatively gear investments and offset their costs against other forms of income, a strong argument can be made to allow for first home buying families, trying to get on the property ladder to tax deduct the interest on their housing loan.
This would be a once off benefit that would apply ONLY to their first home giving them a benefit when they need it most as they wrestle with the costs of establishing a family and all the usual costs associated with that.
Young families need all the help they can get including tax breaks when they need it most.