Making changes to negative gearing would likely result in negative outcomes, according to the chief economist at REA Group.
Reforms were publicly brought up last year to mitigate problems with the housing market. However the market has changed since then and reforms may not be as welcome now.
Nerida Conisbee said, “The reason that there was most discussion about negative gearing last year was because the market was so red hot, and there was this belief that investors were driving the heat in the market and so [the discussion of negative gearing reform] was saying of something that you could quickly take the heat off the market if you pull back the demand that was coming through investors.”
However, Conisbee acknowledged that the property market is now cooling and that investors have pulled out of the market amid a lot of stress, including difficulty in accessing finance and the fact that interest rates are not going up.
Because this is the case, attempting to implement changes in negative gearing would likely result in negative outcomes. One of the biggest, according to Conisbee, would be a shortage in rental housing.
She added, “Almost all of the rental housing in Australia is provided by momentary investors, so you have a problem in some cities where – without negative gearing – [they’re] not going to have enough investors. And, without enough investors, it will relate to shortage of rental housing and it will relate to increasing rents.”
Negative gearing removal is not the only solution for affordable housing. Other programs, like the IOP, have attempted to address it.
Conisbee said, "The problem is that when the IOP came out to be a policy, there was no backup plan to provide rental housing, particularly in some areas. The problems in places like Wagga [Wagga] – In Wagga, a lot of people rent, and the reason that they rent isn't necessarily because of low income. They're generally not planning to stay in Wagga for a long time, perhaps because they work in Defence or Education and may need to transfer elsewhere after a set time period.”
Discussing the Labor party’s proposed plan to remove negative gearing from existing properties, but not new ones, Conisbee again goes to Wagga Wagga to illustrate a potential repercussion.
Because the city does not need more housing, not very many new homes are being built. As such, if an investor was interested in buying a property there, he or she would not be able to get any negative gearing concession, despite the fact that the city shows a need for more rental housing.
Even bigger cities can have a lot of problems in shortage of rental housing. For instance, Sydney is unaffordable for most would-be renters.
“When you're on an average income, you cannot afford to rent [at] an average price,” Conisbee said.
Conisbee reiterated that in Australia, negative gearing is one of the foundational blocks for rental housing, and if it is altered, the nation would need to consider the potential consequences.
She said she had examined alternatives such as build to rent, which is the main way that a lot of overseas markets provide rental housing such as US and UK. But, there’s a lot of work needed to ensure its effectivity.
Nerida Conisbee will be presenting at the Sydney Property Buyer Expo on 7-9 September at the ICC. Tickets and more info at: www.propertybuyerexpo.com.au - enter YIPVIP for your FREE ticket!
