Should negative gearing be scrapped?

Peter J Ricci

17 years ago

3 minute read

I have been thinking about this for a while now and have spoken to some agents (clients) about this. So here goes. I think that something drastic has to be done in relation to property prices across Australia. No-one is game to say it, but I think it has to be said. Negative gearing is going to cost the industry dearly in the long run and here is why.

A recent survey by Wendell Cox Consultancy has pointed to the fact that it now takes more than 8 years of salary to buy a home in Sydney, up from 3.5 years in 1980. To me this would mean less first home buyers in the market. Now even if this is exaggerated, it is still bad for the industry. Yes agencies claim more commissions the higher the prices go, so do banks, so do governments, but who actually wins? Rising home prices only benefits the few, whilst for the majority of Australians it has become harder to buy into the market.

For mine, existence here on planet earth is about a lifestyle for all of us, our friends and family, as each year passes, lifestyles are being effected because most of our resources are being poured into having a roof over our heads, rising fuel costs, grocery bills.

I mean are we better off after all of these years of economic growth?

It seems that most people in the industry are only concerned about when a market booms – however having affordable homes means more buyers, more commissions, more turnover. If negative gearing was scrapped – yes there would be a few years of downturn, but we go through these cycles anyway. The good to great agencies would survive and yes some would flounder, but on the whole I think it would be a positive thing. If it ever were introduced it would be a slow introduction, but it would have an immediate effect. Negative gearing costs Australia around $3 billion a year, this money could be used to help first home buyers and be put to better use on infrastructure for land etc. Rising home prices puts upward pressure on wages and many other things. So maybe it is time for some brave decisions. If nothing is done all you will see are 50 year loans and even generational loans like in Japan. Surely this is not good for tomorrows kids entering property markets.

I am sure I will be picked to death on this one, banks, agents, governments and investors have a bit a stake here, but so do the millions of middle and lower income Australians. Many places today are still relatively affordable, but that will soon change unless something critical is done and done soon. Ditching negative gearing would have an immediate impact, many people would exit the market and yes there would be a flood of properties, but I bet there would be a flood of buyers as well.

So there it is, I feel I would be providing a disservice if I only wrote articles that would be popular, and I am sure this will draw some criticisms and possibly silence from some quarters.

But this forum is for discussion across a variety of subjects. So I would be interested in all of your views.