New report debunks negative gearing myths

A new report into the impacts of negative gearing and the capital gains discount shows these measures are helping to boost the supply of new homes, put downward pressure on prices and give ordinary Australians a better chance of entering the property market.

Australian housing investment: analysis of negative gearing and CGT discount for residential property by ACIL Allen Consulting was commissioned jointly by the Real Estate Institute of Australia (REIA) and the Property Council of Australia as part of an evidence-based examination into housing affordability factors.

The research finds that:

• the provision of negative gearing in conjunction with the CGT discount promotes investment in rental properties and increases supply of new housing;
• around a third of all new dwelling construction is financed by investors every year, debunking the myth that negative gearing does nothing to support housing supply;
• two thirds of property investors who benefit from negative gearing earn a taxable income of less than $80,000 a year;
• Those earning less than $80,000 a year claim the majority (58 per cent of total value losses in 2012-13);
• the per cent discount on capital gains helps to ensure that purely nominal gains are not taxed and in doing so, promotes the incentive for individuals to save and invest; and
• removing negative gearing of the CGT discount altogether for property will dampen investment, diminish rental supply and make it more likely that in the short to medium term, rents and property prices will increase.

The report show that negative gearing and the capital gains tax (CGT) discount are helping to boost the supply of new homes which puts downward pressure on prices, giving people an opportunity to get into the housing market and helping ordinary Australians build wealth for their future.

RDC Executive Director Nick Proud draws attention to the report’s findings that the immediate removal of negative gearing without allowing to carry forward losses is likely to result in a portion of the average net rental loss being added to rental prices. In 2012-13, the average net rental loss made by Australians was $90.

The report has elicited strong responses in the media, but the RDC continues to call on government to start focusing on the real barriers to home ownership like stamp duty costs and outdated planning systems.

This report not only debunks the most common myths around negative gearing and the CGT discount, but shows the clear bottom line benefits it delivers by increasing housing supply.

Mum and dad investors are overwhelmingly those who benefit most from negative gearing policies. This isn’t some tax lurk for the wealthy, rather an incentive for people on low to average incomes. And it has benefits for the broader economy.

Download the ‘Australian housing investment: analysis of negative gearing and CGT discount for residential property’ in the attachment below.