The Gears of Investment

By Kael Sharp

Negative Gearing has been a much maligned concept. Not so, says Kael

There has been a lot of discussion over recent months about Negative Gearing property market and the economy. Painting the NG picture as a situation that is detrimental to both the Australian property market and economy is unjust to the Australian people. Why? It blames the lack of housing affordability on NG on the back of an increase in housing prices in both Sydney and Melbourne over the previous 3-4 years.

It is easy for anyone to blame something on a policy such as NG but as with anything to do with our property market or economy, there is always more to the picture than meets the eye.

There are many benefits to NG in its current form. The policy allows for individuals (including low and middle income earners) to invest and increase rental property availabilities. The Liberals understand that competition is beneficial to the property market, the economy and Australians. A competitive property market allows for rents to be lower and allows for sustainable property prices. The higher the availability of rental properties in a market allows for investors to compete with each other to gain tenants – this equals lower rent. There are many examples of this occurring across the country, when individuals invest into a property market (such as by using NG), rents have decreased. Having seen this first hand when I rented in Sydney, I can see this as a great benefit of NG. What happens when rents decrease? Renters have more of their disposable income available. Australians can then use this to save for a deposit for their own home.

NG has also been around for many decades. During this time, governments have attempted to change it – the Hawke-Keating Government changed the NG policy in July 1985, after a tax summit. The results from these changes were so devastating to the property market and Australian economy that it caused the government to reintroduce NG two years later in July 1987. The discussion that came after the change back to allow NG stated that the increase in rents, decrease in available rental properties and increasing size of the waiting list for government housing had caused the government to intervene. This same result could occur again if changes to NG were to occur.

Many who support changes to NG say “Look at Sydney, property is unaffordable because of investors and NG”. An interesting statement but one that is invalid. What must be understood about NG is that it is a national policy, not a region specific one. While prices in Sydney went up in 2012-2015, in other parts of the country, prices were deteriorating. What also must be considered is that during the property price slump of 2001, NG was still available for investors. Property prices were increasing at a slow rate in Sydney, yet NG was still around. Can we blame NG for this? No, of course not.

To understand property markets, property prices, rental prices and the economy, many different aspects need to be looked at. NG is one of many different things that affect the property market and housing affordability. Interest rates, supply and demand, the construction industry, disposable income and lender availability are some of the many other factors. NG has been proven to help Australians from many walks of life. It is a system that is working and working well. Why attempt to fix something that isn’t broken?

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