News + Updates

The Negative Gearing debate.

In recent times there has been plenty of commentary in the various media platforms, regarding the state of the housing market across Australia.

Domain snapshot Dec 23 quarter

As you are probably aware there is an ongoing rental crisis, largely brought about by investors selling their investment properties during the COVID crisis and taking advantage of increasing values. This in turn has decreased the stock of available rental properties, which in turn pushed rents up.

There are other factors as well such as migration, which have also contributed to the issue.

In South Australia, for a good ten years prior to COVID, many investors in residential property had not seen much of an increase in the values or the rents for their properties. In fact, in some areas, their rents and values were negatively impacted by government policies, which sought to increase the supply of affordable rents. The major one was the National Rental Affordability Scheme (NRAS).

NRAS did indeed increase the supply of affordable rental properties, but of course did cost the Federal and State governments, money to provide incentives to those investors who engaged in the scheme.

At some stage, the scheme was discontinued, and these rental properties which were leased at 80% of market rate rent, are now progressively coming out of the 10 year agreements.

There has not been a replacement program put in place.

Government response to the housing crisis

Many levels of government have been challenged regarding increasing house prices and rising rents.

Obviously, as house prices increase it is more difficult for buyers to enter the housing market. They require larger deposits and bigger mortgages. If they are renting, at the same time, they are also bearing the brunt of increasing rents.

Long term renters are also facing problems with increasing rents and are forced into decisions around what they spend their money on and also whether they have to move to be able to afford accommodation.

Media does love to dissect the government response and proposed strategies, and in recent times, there have been proposals about capping rents, which didn’t seem to get much traction. The latest proposals raised by the Greens, have been regarding Negative Gearing. There is a lot to play out here, as political parties trade off certain suggestions from the opposition or smaller parties, to get their larger agendas through parliaments.

Keep an eye on the media for what I think will be regular updates.

What’s missing here?

It seems to me, and this is my personal opinion, that we are seeing knee jerk reactions to various crises, that have largely been brought about by the lack of foresight and action by all the ruling parties when they have been in power.

Do we not elect parliaments to run the country, with foresight and planning, taking in to account what may happen in the future as well as the cost.

In respect of the housing crisis, across the spectrum, we have seen the powers that be blame a variety of things, but in particular, greed investors and landlords. This has seen the rise of proposals regarding capping rents and changing negative gearing.

What this approach fails to consider, is how much of the heavy lifting these greedy investors and landlords do.

The fact remains, that they are by far the largest providers of rental accommodation to the market.

We have seen, here in SA, that after a decade of a stagnant property market, many investors sold their investment homes, contributing to a rental shortage.

During the proceeding years, yes, they did get support via the tax system. My concern is that if this support is eroded, we will see another tranche of investors also fee the housing market, further exacerbating the rental problem. Certainly, there will be more homes available to home buyers and it could also precipitate a drop in house values.

Nick Bevan

15/2/24

Please note. These are my personal opinions and are shared to stimulate discussion. Hopefully we can all become better informed about our voting choices in the future. If I have made any errors here, please feel free to point them out, so I can reconsider them