In today's episode Cam & Al cover an in-depth discussion on negative gearing in Australia, focusing on its impact on property investors and the housing market.
Definition and Basic Concept: Negative gearing is a tax offset where investors deduct property losses from their taxable income, reducing tax liability. It’s commonly used by average Australians earning around $87,000.
Rationale for Negative Gearing: Negative gearing helps investors by having tenants, the government (via tax breaks), and the investor collectively cover the costs, making property investment more accessible, especially for first-time investors.
Historical Context and Political Debates: Previous attempts to remove negative gearing (e.g., 1987) led to rent hikes and investor sell-offs. The policy was reinstated due to the adverse impact on renters and the housing market. Politicians often debate negative gearing near elections, with concerns over housing affordability versus investor benefits.
Housing Supply Crisis: Australia faces a housing supply shortfall, worsened by high immigration and insufficient new housing construction (27% below the 10-year average). Negative gearing is seen as supporting housing availability by incentivizing investments in rental properties.
Proposed Policy Adjustments: One proposed change is to allow negative gearing only for new builds, thereby increasing housing supply. This could balance the need for affordable housing with economic growth while avoiding the creation of ghettos or segregated low-income areas, as seen in the U.S.
Economic Implications: Immigration is crucial for economic growth, but it raises housing demand. Increasing construction could offset this demand, but high property taxes (up to 43% on home costs) hinder affordability. Reducing taxes could make housing more affordable without eliminating negative gearing.
Future Policy Speculation: The likelihood of abolishing negative gearing is low due to past political backlash. The discussion speculates on the government’s strategic use of this topic to gain votes, despite a low probability of actual reform.
Negative gearing as an essential tool for maintaining a balanced housing market, where its modification, rather than elimination, could address both investor and social needs.
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