Tuesday, June 22, 2010

Negative Gearing Exposed

By far the best analysis of the impact of negative gearing on the residential property market is found here.  The myths that negative gearing increases the supply of rental accommodation and keeps rents down are exposed, and some quality suggestions for improving housing affordability are made.  Highly recommended.


  1. It's all pretty simple really, when you look at the big picture. sorry Cam, I really didn't have soo much time to read through that long winded site. Do you kow you much time it would take to test all of those graphs? Jeeez. And that's ater ingesting all of the fill in what's really a simple subject.

    So anyways, the big picture shows that if "first home buyers" paid minimum tax on their home purchase, getting them into their homes more quickly we wouldn't need soo many rentals.

    Further if (2)second, (3)third, (4)fourth (and so on) house puchasers were taxed (1)higher (2)more and (3) higher still, fewer people would invest in housing through of purchase ability. We might remember here that housing should be classed as a basic service.

    Those people wishing to invest would then turn to other investment opportunities, possibly such as alternative energy, advancing that necessary commodity. With lack of competition home prices would come down.

    Negative gearing not required.

    It's not rocket science.

  2. a lot of common sense in this article - unfortunately long term political foresight, courage and common sense required to FIX the issue. One point however - the reason the great mojority of investors buy established homes -as per graph -is that they are closer to services,jobs etc and therefore attract higher returns that new properties in outlying areas would not - a bigger bang for your investment buck

  3. Gary said "Negative gearing not required"

    So where will all the renters go if there's less rental accommodation available ? Only a v. small proportion actually are able & willing to buy. Gary appears to be advocating increased homelessness.

    Cameron.... How about a post about all those that PREFER to rent for some reason ? Those
    -recently divorced
    -saving deposit
    -have temporary job
    -can't afford to buy where they want to live
    -prefer to invest in other asset classes
    -are expecting a house as an inheritance
    -can't convince bank to lend to them (unstable work or something else)
    -those that refuse to buy because they expect 'a crash real soon now'
    -those that can't actually get their s**t together & prefer to p**s it up against the wall (probably the largest group of renters)
    -young adults who fall into several of the above categories
    -the list goes on......

    The unintended consequences of the removal of -ve gearing obviously aren't as simple as some bloggers appear to think.

  4. Charlimi,
    Negative gearing is a feature of the tax regimes of just three countries - Australia, Canada and New Zealand. In most countries, the expenses (and losses) on property can only be claimed against income from the same property. In the Netherlands interest on debt secured against your principle place of residence is tax deductible - a clear incentive for home ownership.

    There are now problems finding rental accommodation in every country I've visited that does not have negative gearing. Maybe it is as simple as we bloggers think.

    Another point is that the number of dwellings does not decrease simply because of a change in the tax regime. I'm not sure why you think the amount of rental accommodation will decrease because of a change to the tax rules. If investors are forced to sell due to the tax change someone will buy. If they too are an investor they will still offer the home for rent. If the new buyers are owner-occupiers, their previous home will now be available to rent or buy.

    I've yet to hear an explanation of how fewer dwellings will be available to rent if the tax regime changes. Probably because one does not exist.

  5. "I'm not sure why you think the amount of rental accommodation will decrease because of a change to the tax rules."

    You miss my point. A change in -ve gearing will cause housing to be a worse investment. The number of houses will remain the same, and prices will probably fall a little, and investors will want a higher yield to compensate for the loss of tax benefits. However, since 30% of us NEED to rent REGARDLESS, they will be paying higher rents. Solely because the current generation feel entitled to a 'nice' house like their parents.

    To summarise - previous generation suffer through lower existing house prices AND future generations suffer through higher rents & less ability to save a deposit, but you guys get to skip the bottom rung of the ladder.

  6. Prices falling is the mechanism by which returns will increase. Why would rents increase in addition to this?

  7. "Prices falling is the mechanism by which returns will increase"....

    I think that proves my point that your only reason for wanting to remove -ve gearing is to get lower prices so ONLY your generation get to benefit.... sod the previous generations, and sod the next generation of renters (who have a reduced supply of rentals & consequently higher rents).