Negative gearing not just for the rich: report

The Real Estate Institute of Australia says its recently released report into negative gearing shows renters would pay much more if there were to be any changes to the policy, despite claims to the contrary by a leading research institute.

The report, ndertaken for REIA by ACIL Allen, aimed to counter claims about the impacts of negative gearing and the capital gains tax, in the light of a barrage of calls to abolish the schemes.

The institute’s chief executive, Amanda Lynch, said mum and dad investors were the ones who benefited most from negative gearing – when the cost of owning a property outweighs the income it generates, resulting in a loss for tax purposes.

She said the report found that two thirds of property investors who benefited from negative gearing earned a taxable income of less than $80,000 a year.

However, John Daley and Danielle Wood from the Grattan Institute said those numbers were misleading, as negative gearing naturally resulted in lower taxable incomes.

Ms Lynch rebutted the claims by the Grattan Institute, which she said were based on a misinformed belief about the income profile of investment property owners. “In fact property investors are mostly everyday Australians building wealth for their families,” Ms Lynch said.

“Seventy three per cent of those who negatively gear their investment own just one property and a further 18 per cent just two properties.”

The report found that about a third of all new dwelling construction is financed by investors every year, but that number was decreasing.

REIA policy manager Jock Kreitals said the falling number of investor-purchased properties was not a concern, as construction figures lagged due to the approval process.

“Is it worrying? No, because construction is actually picking up, as it is at its highest level for a number of years in the past 12 months,” he said.

Ms Lynch told Business News the criticism that investors’ overwhelming preference for established dwellings over new builds was to be expected.

“Investors often prefer houses near transport routes, near shops and near workplaces, so it makes sense they would have a preference for existing houses; but that’s not to say there isn’t a substantial investment in new houses as well,” Ms Lynch said.

While impossible to quantify the full impact negative gearing has on rental prices, the report found that its effect on housing supply was likely to place downward pressure on rents.

However, the Grattan Institute said the report findings suggested that landlords would try to pass on a fraction of their higher tax costs by pushing up rents.

Ms Lynch said REIA did not support any changes to negative gearing or the capital gain tax discount, due to the distortions on the tax system and the impact it would have on confidence.

“It would result in a lot of detrimental impacts to the Australian economy, and also for first home buyers and renters,” Ms Lynch said.

“It is time to get off the bandwagon and focus on the real housing affordability problems.”