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REIA continues criticism over negative gearing changes

16 September 2014 Elyse Perrau
Negative gearing

It is highly anticipated that changes to negative gearing will lead to investors leaving the residential property market and an increased swelling in waiting lists for social housing, says the Real Estate Institute of Australia (REIA).

REIA research officer Evgeniya Hawthorne was responding to the question: will social housing be able to cope if the current arrangements for negative gearing of property investment are changed or abolished?

Ms Hawthorne said the issue of social housing has been a challenging policy area for Australian governments.

“Those who cannot rent privately are forced to stay on long waiting lists with the number of applicants mounting,” she said.

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“Demand for social housing in Australia exceeds supply  in Victoria, particularly, demand exceeds supply by 30 per cent.

“However, the system does not offer the type of housing that many tenants need because the public sector is generally less efficient in managing rental property rather than the private sector, with a large proportion of stock in disrepair yet on valuable land,” she added.

Ms Hawthorne said the provision of social housing is expensive and those who call for the removal of negative gearing arrangements should consider the potentially negative impact it will have on an already strained social housing system.

“History suggests rents will increase if negative gearing is removed, and this in turn will place an even greater strain on social housing,” she said.

“It is highly anticipated that changes to negative gearing will lead to investors leaving the residential property market.

“The Australia’s Future Tax System Review, informally known as the Henry Tax Review, acknowledged that negative gearing applies downward pressure on rents.

“It warns that amendments to taxation of rental housing should only be adopted following reforms to the supply of housing,” she added.

Ms Hawthorne said a comparison of the rental markets in Australia and the UK “clearly shows” the importance of negative gearing for investors.

“While the share of the rental market is similar and is around 30 per cent in both countries, the proportion of dwellings rented from the UK government is considerably higher – 17 per cent for England compared to four per cent in Australia,” she said.

“Given that governments have not detailed a clear strategy to address the chronic under-funding of social housing, it would seem imprudent to remove the incentive that helps keep rents lower and prevents a further swelling of social housing waiting lists.” 

REIA continues criticism over negative gearing changes
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