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Negative Gearing & the Election

With housing affordability a major concern in heated Australian markets, negative gearing is likely to be a big issue in the coming federal election.  As one of the most widely used incentives to reduce tax, any moves to scrap negative gearing will be as contentious as the concessions themselves. While proposed ALP reforms to negative gearing could save the federal government A$1.7 billion according to The Conversation, these changes do not stretch across the political divide.

As a significant tax incentive, negative gearing encourages more people to invest in property across Australia. This tax concession has been one of the major drivers behind rising real estate prices, with the Australian market widely recognised as one of the most unsustainable in the world. With house prices in Sydney and Melbourne still high compared to average income, and more young Australians than ever locked out of the housing market, there is a growing movement to scrap the contentious tax break.

In order to tackle housing affordability, the ALP has announced plans to reform negative gearing and the capital tax discount after the next election. As one of the major differences between political parties when it comes to housing reforms, this is likely to become a significant talking point as the election draws near. According to a recent report by RiskWise Property Research and Wargent Advisory, The ALP's policy will lead to less competition and a significant decline in house prices.

With young residents in Sydney and Melbourne already labelled 'generation rent', this could help more people to get a foot onto the property ladder. Despite reduced house price growth over recent months, the national market still managed to rise by 0.9 percent over the last 12 months according to the latest Property Outlook Report. While the housing market slowdown in Melbourne and Sydney continues to dominate the headlines, Hobart prices are surging and Brisbane, Canberra and Perth are also enjoying healthy growth.

According to demographers Ernest Healy and Bob Birrell from the Australian Population Research Institute, "It’s all gone horribly wrong... Property owners are feasting on extraordinary capital gains at the expense of young people who, in Sydney and Melbourne, will never experience any similar benefit because they cannot get onto even the lowest rung of the property ladder... The result is an intergenerational divide in which the younger generation have diminishing prospects of attaining the housing their parents’ generation enjoy.”

Potential changes to negative gearing are not all good news for young people, however, with fewer investors also likely to reduce the number of rental houses available in key markets. While more first-home buyers will be able to enter the market, it may become more expensive for people to rent a home. This impact will differ depending on where you live, with Melbourne and Perth two examples of cities that have a healthy supply of rental housing. Reforms to negative gearing may also have a negative impact on mum and dad investors, which is what the LNP will point towards in the election build-up when they oppose the ALP position.  

 

Image source: chrisdorney/Shutterstock

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