Emma Alberici and Angus Taylor, Federal Assistant Minister for Cities discuss negative gearing in the housing market.
It is true that negative gearing greatly distorts the housing market. However, it also provides a strong incentive to invest in property. This gives renters a place to live.
Very little is known about how these separate, yet linked, markets will react to a change in negative gearing policy.
Yes, it will be costlier for investors to hold property in their portfolio. But on the other hand, it will make holding property as an investment more expensive. Confused?
If investors were to sell their property, more houses would be on the market. Prices may slow. Yet it is costly to sell these properties, so they may hold on to property and recover some earnings through increased rents.
If you are a renter and the cost of living in your existing dwelling increases, there is greater incentive to look at owning property versus renting. If these renters decide they want to buy property, we now have greater demand.
Which of these effects is greater? We do not know, and there are far more dynamics at play.
Plenty can be done to better understand these issues. However, we must also ask ourselves; how will we, as a nation, fare if prices were to cool and interest rates were to rise? This is an issue that is just as pressing as deciding whether to alter negative gearing or not. If what Emma Alberici says is true, 55% of all loans are held in property, an increase from 34% in 1992.
AT:" [...] But there are many more housing markets than those ones [Brisbane and Melbourne]. It's a much bigger, there is much bigger range of markets than those ones. I think what everyone is agreed on is that there has been serious shortages." EA: "That's verses demand. And what I'm suggesting to you is the demand is as high as it is because we've got so many investors in the market. You have to look at housing finance figures from 1992. They show around 17% of all loans went to owner-occupiers and roughly the same, around 17%, went to investors. Fast forward to 2015/16 and less than 10% of loans are going to owner-occupiers and 45% are going to investors. Are you telling the audience that has nothing to do with negative gearing? "