Negative Gearing – Should it be Changed or Not?

December 3rd, 2013

In the property market, negative gearing is good for investors and homeowners, but bad for renters and first home buyers. Here’s what the property experts have to say about changing or not changing negative gearing, thanks to Property Observer.

According to chief economist Shane Oliver, it’s not negative gearing but a lack of housing supply that is the real problem. House prices are higher than the average income, which does nothing to increase building approval rates. Changing or removing negative gearing will further reduce rental housing supply when rental yields aren’t appealing for investors.

Economics and finance professor Steve Keen said that negative gearing should be removed. It encouraged people to make price speculations on existing properties, which increased house prices and decreased rental property supply. Furthermore, investor borrowing for new building constructions fell from 60% to less than 10%.

Real estate writer Terry Ryder said that negative gearing doesn’t have to be changed. Most investment properties in the city have negative cash flow, so without negative gearing, investors will decrease, which will in turn reduce the supply of rental properties.

For Peter Bushby, president of REIA, negative gearing should stay because it’s essential for property investment and actually provides rental accommodation. It’s also not just for the wealthy, as most people with negatively-geared properties earn below $80,000 annually.