Negative gearing and capital gains discounts help boost the supply of new homes and put downward pressure on prices, a new research report states.

The report, 'Australian housing investment: analysis of negative gearing and CGT discount for residential property' by ACIL Allen Consulting, was commissioned jointly by the Real Estate Institute of Australia and the Property Council of Australia as part of an evidence-based examination into housing affordability.

The research shows that the measures promote investment in rental properties and increase the supply of new housing as around a third of all new dwelling construction is financed by investors every year. Two thirds of property investors who benefit from negative gearing earn a taxable income of less than $80,000 a year, and those earning less than $80,000 a year claim the majority (58 per cent of total value losses in 2012-13), the report found. The report warns that ‘the immediate removal of negative gearing without allowing to carry forward losses is likely to result in a portion of the average net rental loss (which was, on average, $9,500 in 2012-13 across all taxable income groups) being added to rental prices’.

Property Council of Australia Chief Executive Ken Morrison said the arguments for removing negative gearing and the CGT discount just don’t stack up. “Negative gearing and CGT are doing all the right things when it comes to improving housing affordability for Australians,” Morrison said. “It is time to start focusing on the real barriers to home ownership like runaway stamp duty costs which have increased by as much as 800 per cent in the last two decades.”