"I own a real estate agency and have been in the business for 30 years. Here's more than 5 reasons why we should keep negative gearing."
When Paul Keating was Treasurer the Labor party decided to abolish negative gearing on property. Rentals in my area doubled almost overnight. Investors rightly reached the conclusion that if they were not going to receive sufficient benefit from one source they would get from another.
While there was a lot in Mark Hudson's blog about the supposed beneficial effects of the changes in house prices, there was no reference to the unintended consequences on rental prices.
The Australian Government does not have the capacity to pick up the accommodation shortfall if private investors desert the housing rental market. The last estimate I saw of the shortfall was in the many billions of dollars.(584,200 properties required in 1997)
Many people are happy to have negative cash flows if they believe they will receive more than the total losses when they sell. That also applies to the stock market and large corporations.
What a discovery that the rich get richer and the poor get poorer. It was ever thus and not because of negative gearing but because the wealthy train their offspring in the rules of financial management while many of the poorer folk use credit cards at huge interest rates to buy Christmas presents rather than saving even 10% of their income to protect themselves.
Throughout investors have gone without spending on depreciating assets to achieve ownership of appreciating assets. In the case of people who never get out of renting they seem to be unaware of this truism.
In saying that investing in established property as opposed to building new property adds little to GDP, Hudson assumes that the building industry could handle the sudden rush of construction required. The argument also fails to factor in what that pressure would do to new home construction costs.
According to the Australian Bureau of Statistics, the percentage of their income spent by low income earners was 28% in 2000 and 28% in 2020.
First home buyers have the advantage of a first home owners grant unavailable to earlier generations and my experience is that Gen Y’s refuse to start with a basic property and change as their income and equity rise. A better comparison is to look at how many years income it takes to buy a house. It is not that big a difference to my first house.
Most owners of rentals I have known know property speculation is a mug’s game and property bubbles like all bubbles are caused when ALL buyers panic, thinking that property values never come down from their peaks.In some areas of Australia the drop in prices after the GFC hit was as much as 20% but today most have recovered and some have exceed the previous peak considerable.
There is a huge difference between the recent history of Sydney and Melbourne compared to Perth. What I can state with authority is that real estate prices have always exceeded the previous peak after a so called bubble. The only way to lose is to sell before values recover.
Most property investors by the way only own one property based on many statistical analyses I have conducted). The purpose of the majority is to have control over a part of their superannuation. As already stated by previous responders their aim is to become self-funded retirees (which is what the Government is encouraging). They will then be no drain on the pension system set up to protect the same low income earners.