Industry ups the ante on negative gearing

WESTERN Australian property players are ramping up the rhetoric on negative gearing, warning that investors in this state would be among the hardest hit if tax breaks for making a loss on an investment property are rolled back.

The issue of negative gearing has become one of the bigger flashpoints of the federal election, after Bill Shorten revealed earlier this year that a Labor government would restrict the tax benefit to those investing in new housing from July 1 2017.

Negative gearing, where investors buy property, then make a rental loss on it and receive tax benefits, has often been blamed for Australia’s lack of housing affordability, because cashed-up investors buying properties, and in turn pushing up prices, make it difficult for those on low incomes to buy into the housing market.

However, WA’s peak property bodies – the Real Estate Institute of Western Australia, the Master Builders Association, the Urban Development Institute of Australia and the Property Council of Australia – have all launched public campaigns with the shared message that WA’s property industry would be negatively affected by any change to the tax breaks.

A recent survey by Reiwa showed 87 per cent of Western Australian respondents believed property investment was important to them, while 92 per cent of those respondents were aware of the negative gearing tax policy.

Reiwa president Hayden Groves said a widely accepted misunderstanding of negative gearing was it was simply a tax grab.

“It actually encourages property investment, helps people to retire with confidence and does not burden the federal government’s aged pension scheme,” Mr Groves told Business News.

“Clearly negative gearing secures futures and helps every day West Aussies to become property investors.”

UDIA WA chief executive Allison Hailes said investors provided significant supply of rental accommodation in WA, helping the state government meet its social housing targets, while any change to the system would be a significant blow to market sentiment.

“This increases the pool of affordable housing that’s available to low-income earners and is critical to the economy,” she said.

Perth has the third-lowest rental yields of any capital city in Australia, at 3.9 per cent, which means investors rely on negative gearing to offset cash flow losses against their taxable incomes.

Peard Real Estate Group chief executive Peter Peard said the oversupply of rental properties in Perth would quickly disappear if negative gearing was abolished for the established housing market.

He said the last time negative gearing was abolished, in 1985, weekly rents in Perth rose by 37 per cent.

“Generally, it will become much more expensive for families in Perth to rent houses in established areas close to the city and coast because investors tend to rely more heavily on negative gearing in these areas,” Mr Peard said.

“The bottom line is that established property owners in Sydney, Melbourne and Perth would find the value of their properties hardest hit in Australia by these negative gearing changes.

“With fewer property investors active in the Australian property market trying to fund their retirement, more people will over time be reliant on the government pension.”

MBA WA executive director Michael McLean said the real issue with housing affordability was that not enough homes were being built to meet demand, which was forcing up prices.

“Instead of restricting negative gearing, governments would be better served in increasing the supply of affordable housing and cutting red and green tape,” he said.

Property Council WA executive director Lino Iacomella also urged both federal parties to resist the urge to tinker with negative gearing.

“The facts are that it makes no sense to target the one part of the economy that is contributing to growth by playing around with these tax settings,” he said.