Ahead of the next budget in May, the real estate industry has stepped up its defence of negative gearing with First National Real Estate's chief executive Ray Ellis stating that eliminating the tax measure would see unaffordable rental prices for the most vulnerable in our communities.
"The great Australian dream is to own your own home and it is important we remember just about every Australian begins his or her journey to property ownership as a tenant in a rental property," said Ellis. "Australia has one of the fastest growing populations in the OECD so keeping rents affordable depends entirely on maintaining an adequate supply of rental properties. This can only be done if Australians continue invest in properties they are prepared to rent to others. The main thing that keeps that attractive is negative gearing."
Ellis said suggestions that negative gearing is a perk for the rich are misguided. Australians are currently given the opportunity to invest in real estate as a way of saving for independence in retirement, said Ellis, but with the average property investor owning just one rental property and having an income no higher than $80,000, suggestions that the rich are exploiting negative gearing are an exaggeration. "If negative gearing were removed in an environment of the lowest interest rates since the 1950s, Australians would be unlikely to continue to invest in rental properties at current rates. They would seek better returns elsewhere and, with population growth near record highs, the supply of rental properties would fall short of demand, thereby forcing up rents." said Ellis. "This would place unacceptable pressure on the most vulnerable citizens in our community. It would also lengthen the amount of time it takes for first home buyers who are renting to save a deposit to buy their first home."
The removal of negative gearing could see rents surge dramatically, when last year, rents had an annual growth rate averaging 1.8 per cent, rising more slowly than inflation. "Negative gearing plays a vital role in balancing supply against the demand for rental properties and this helps keep housing affordable for everybody," said Ellis.