A leading accounting group has slammed critics of negative gearing, saying any move to abolish the tax break would see rent increases of 50 per cent or more, leading to economic uncertainty and social dislocation.
Property tax accounting specialists Chan & Naylor said negative gearing opponents have recently argued the case that scrapping the mechanism would save the government $5 billion in the first year and free up housing supply.
Chan & Naylor said the more realistic outcome of such a move would be market consolidation and rental increases of maybe 50 per cent or more over time, leading to wider economic uncertainty and social dislocation.
The firm's managing director Ken Raiss said the Australian rental market is currently controlled by “mum-and-dad investors”, rather than commercial landlords.
“As a result, the Australian domestic housing market remains akin to a ‘public co-operative utility’ with rental properties available at varying levels of affordability,” said Mr Raiss.
Take negative gearing out of buying a residential property, he said, and the 90 per cent balance of stock owned by investors will “inevitably” be purchased by commercial landlords, who will demand higher rental yields.
“Like any other public utility, as soon as they enter private and more entrepreneurial hands, then prices will go up, and in the case of public housing, this could lead to a rental price hike of as much as 50 per cent over time,” he said.
“[This would] result in the government having to shoulder the weight of providing a much larger percentage of housing for tenants, and social dislocation for those unable to receive government housing.”
Responding to claims that negative gearing has pushed up property prices and excluding first home owners from the market, Mr Raiss said home ownership, like any form of wealth creation, is all about having a purpose and focused determination.
“A first property that is an investment property and used for rental purposes will enable first-time buyers to generate an income, and offer a security with which they may borrow money to buy a more desirable property to live in further down the track.”