Three Inconvenient Truths About Scraping Negative Gearing
The negative gearing debate has again made headlines in recent weeks after it was revealed that the Federal government was considering Treasury modelling that showed the Labor party’s proposed negative gearing curbs would have only “modest” effects on house prices.
But my personal and professional belief is that there are three truths this very academic modelling doesn’t take into account.
Firstly, the report is not accurate as it disincentives current investors and assumes that people who are renting will all of a sudden just purchase a property.
What that doesn't take into account is that renters still need to have a deposit, sufficient incomes to afford the loan and the ability to repay that loan. In other words for a lot of renters if they had the deposit and income, they would already have purchased.
Secondly, investment property loans are harder than ever to qualify for and rental vacancy rates in NSW average 1.8%, so if you remove the incentive for investors to own property, you will actually see the vacancy rate reduce further which could very well drive up rental prices.
Finally, during the 2016 election campaign Prime Minister Turnbull himself said a Labor plan to wind back but not eliminate the negative gearing tax concession would "smash up home values", and "pull the rug out from under the property sector".
The Chairman of Ray White, Brian White also argues against any changes to negative gearing, claiming, “Even more important than modelling are historical trends. The only time similar changes to property taxation were previously attempted was under the Hawke government in the mid-'80s resulted in a devastating effect that forced the Labor government to reverse their policy a short time later. “There’s no telling how a second attempt would play out in a market that’s already softening,” he said.
If you would like to know about negative gearing and how you could be effected please feel free to contact my team today.