Tenants the big losers if negative gearing changes

A key industry body and some real estate franchise bosses agree that potential changes to negative gearing will have adverse effects for tenants in months to come.

A release from the Real Estate Institute of Australia (REIA) said Labor's proposed changes to negative gearing will shrink housing investment, increase rents and require more government investment in social housing.

REIA president Neville Sanders said negative gearing is a key contributor to new housing, with the construction of around one third of all new dwellings financed by investors, and investor loans committed to new housing having increased seven-fold since 1986.

“An increase in rental supply means higher rental vacancies and lower rents than would otherwise be the case,” Mr Sanders said.

“The benefit to renters from improved rental affordability was directly recognised by the Henry Tax Review (2010), commissioned by the current Opposition, which noted that 'the current tax advantages available to highly geared investment can operate as a subsidy to renters by placing downward pressure on rents'.”

According to Mr Sanders, from 2013, when housing investment picked up, the rate at which rents have increased in Australia has slowed down, with the quarterly and annual increases for March 2016 the lowest since March 1995.

“In Sydney and Melbourne, where much of the investor activity has been focused, the increase in rents in the past 12 months has been 2.3 per cent and 1.4 per cent respectively – the lowest annual increase since June 2006, whilst at the same time there has been a steady increase in population in both cities,” Mr Sanders said.

Meanwhile, Mike McCarthy, chief executive of Barry Plant, said that while he is concerned about the impact of proposed changes on negative gearing for investors, he is even more worried about the impact on tenants in the future.

“The changes will inevitably lead to a decrease in the number of rental properties available. Lower supply with the same, or increased, demand equals a rise in rents,” he said.

“This in turn will make it even more difficult for renters to save for a deposit. I think renters will potentially suffer the biggest detrimental impact if these changes are adopted.”

Ray Ellis, chief executive of First National, said that while the negative gearing debate has been centred on which income groups will see the greatest benefits, negative gearing has been vital in keeping rents affordable for low-income households.

“If we abolish or restrict negative gearing, the potential for investors to choose other asset classes instead of property could exacerbate the already slowing trend of investor lending. This would lead to fewer rental properties – and rising rents,” he said.

[Related: Why negative gearing is important to renters]

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