Ensure you never miss an issue of the
real estate business bulletin
Why negative gearing is important to renters

Why negative gearing is important to renters

by Grant Harrod 0 comments
Grant Harrod

Tenants will go to the polling booths on 2 July knowing the rental payments on their next lease could increase.

It could be assumed the opponents of negative gearing for investment properties don’t appreciate how negative gearing contributes significantly to rental affordability, which is vital to the budgets of many households. One in four dwellings is owned by an investor, adding to the pool of properties available to tenants.

The majority of these are not luxurious; they are ordinary homes, with the median capital city rent sitting at $485 per week as of the end of February 2016, according to CoreLogic RP Data.

If negative gearing is restricted, there is a risk that investors will be discouraged from purchasing property, thereby reducing the number of rental options for tenants. And when you reduce supply, demand continues to increase, and pricing adjusts accordingly. Furthermore, landlords who currently negatively gear will need to raise rents to cover the loss of income, placing further budgetary pressures on tenants.

Historically, investors have made up around 30 per cent of housing finance commitments; over recent years, in Sydney, this has passed the 50 percent mark.

During this period, rental rate growth has remained flat – around 1 per cent – confirming the availability of rental property is more than matching the demand. A positive outcome for tenants looking to save for their own homes!

In fact, recent LJ Hooker research found that 27 percent of tenants rent a property to save for their own home. If rents rise by 10 per cent, as expected, this will severely affect their ability to save.

Regional and rural towns are also expected to be negatively impacted if investors drop out of the market. These towns attract less new construction than metropolitan areas, but a high proportion of their population relies on rental accommodation.

A strong level of investor demand is crucial in delivering new housing stock and lifting the supply of rental accommodation across the country to keep rents affordable.

Likewise, strong investor demand in the existing market, which is more characterised by free-standing homes better suited to growing families, is equally as important in keeping rental accommodation affordable, as well as offering a choice of rental stock in communities where families would like to live.

Why negative gearing is important to renters
lawyersweekly logo

Grant Harrod has been chief executive of LJ Hooker since 2014. From 2009 to 2013, Grant was chief executive of Salmat. Before joining Salmat, he spent 13 years with Corporate Express Australia, where he served as chief executive for six-and-a-half years.

Grant has an MBA from Macquarie University’s graduate school of management and is a fellow of the Australian Institute of Company Directors.

More articles from this author:
promoted content
Recommended by Spike Native Network
reb top 100 agents 2017

The REB Top 100 Agents ranking is the foremost ranking of agents in Australia. It has set the bar for excellence in Australian real estate. To be ranked as an REB Top 100 Agent is the standard real estate professionals strive for. See the full 2018 ranking here!

featured podcast

featured podcast
The difference between an average agent and one who dominates

McGrath Crows Nest’s Peter Chauncy is number 10 in this year’s REB Top 100 Agents ranking. Peter, however, is more likely not surprised ...

View all podcasts

Would you consider working for Purplebricks or a similar 'DIY' model?

Yes (7.2%)
No (80.9%)
Perhaps - make me an offer (12%)

Total votes: 209
The voting for this poll has ended on: July 13, 2018
Do you have an industry update?