Negative gearing tax breaks are inflating property prices and pushing home ownership out of reach for younger generations, business leaders warned.
Aussie Home Loan founder John Symond told AFR Weekend the tax break favoured investors and was ???????-distorting the property market.
‘Negative gearing is a great tax break, but it needs a total overhaul to make it fairer. First home buyers have no hope of getting into home ownership these days unless they’re helped by their families,’ Mr Symond said.
Company director Elizabeth Proust and Stockland chairman Graham ???????-Bradley have joined growing calls for a policy overhaul to help fix the distorted housing market.
Investors who borrow to buy ???????-property can claim tax deductions for the interest, reducing tax bills on rent and other income. With median house prices going up 9 per cent in the past year, critics said negative gearing gives investors an unfair advantage over people looking for a home to live in, driving up prices and relegating first home buyers and the less wealthy to a lifetime in the rental market.
‘It just isn’t a level playing field when you have first home buyers trying to put together a deposit when they’re up against older people with deeper ???????-pockets,’ Ms Proust said.
The policy is entrenching disadvantage by pushing buyers into cheaper property on the city fringe where ???????-transport, health and education isn’t as good. ‘The policy is making the cost of home ownership so high,’ she said.
Mr Bradley said 15 to 20 per cent of the housing stock sold by Stockland is bought by investors, many of whom would reconsider the investment if???????- ???????-negative gearing did not exist.
A father of two who have bought homes within the past five years, Mr Bradley acknowledges capital city house prices are now ‘pretty high’ but has concerns that steps to address the policy’s effect in the housing market would affect other asset classes.
‘Negative gearing is a significant ???????-policy and any changes to it have to be addressed holistically, you couldn’t change the way it applies to residential housing without having unintended consequences for hotels and shops and so on,’ he said.
Addressing inequity effectively
Mr Bradley argues other policy levers, including incentives targeted to first home buyers and stamp duty ???????-concessions could be more effective at addressing inequity in the housing ???????-sector than reforms to negative gearing.
But placing caps on the level to which the investment property can be geared could also help people on the market’s bottom rungs, he said.
That way, investors would be forced to stump up cash for a deposit, rather than simply funding purchases with equity in other properties.
‘Depending on where the cap was set, it may deter some investors from investing in housing, and it would also mean the government got to tax income from the property more quickly,’ he said. An alternative could be to place a cap on the proportion of expenses incurred on a property that can be claimed as tax deductible, he added.
But any reforms should not be made retrospectively. ‘It should only affect new investments, that way any impact it has is gradual,’ Mr Bradley said.
John Symond reckons putting a cap on the value of property which can be negatively geared is another way to give first home buyers a better shot of ???????-competing with investors.
But if the cap is too low, it could see investor demand becoming even more concentrated in the parts of the market targeted by first home buyers, he said.
‘It’s been great for my business, but the government really needs to look at capping it a level,’ he said.
The number of first home buyers going through Aussie Home Loans for finance has dropped by 50 to 60 per cent in the past four years.
‘They’re walking away from what used to be the great Australian dream,’ he said. ‘But with interest rates at their lowest point in history, and house prices only just coming off the bottom, if first home buyers can’t afford property now, they never will,’ he said. ‘I’m very pessimistic on the outlook for them.’
Agents across the country report a rising incidence of first home buyers missing out to investors.
‘I feel terrible for younger people turning up to auctions and can’t quite get there [on price] when they thought they might be able to own a property before Christmas . . . missing out like that again and again can be really ???????-disheartening,’ Richardson and Wrench agent Andrew Blaxland said.
Events manager Clare Downes, 28, bought her first home in late ???????-November after an exhaustive 18-month search in which she lost out at auctions to investors.
‘It was frustrating. At auctions I’d stand there thinking ‘they’re paying so much for a home they don’t even want to live in it’ . . . I know that’s the way it is, but you can’t help but think it’s unfair.’