A Property blog by Paul Bennion.
Figures produced by the Australian Bureau of Statistics reveals that during the 2011/2012 financial year nearly 2 million taxpayers in Australia owned investment properties.
Many of these taxpayers are middle to higher income earners who use negative gearing and depreciation benefits to reduce their tax and generate wealth through property investment.
The debate about whether negative gearing should be abolished has again re-surfaced with the Shadow Treasurer Chris Bowen indicating that a future Labor Government would review the concessions associated.
However, any future changes to negative gearing could have major implications for the Australian property market.
Critics of negative gearing argue that it gives an unfair advantage to property investors at the expense of first home owners.
They point to the declining number of low income and first home buyers in the Sydney and Melbourne property markets during the past year and argue that these property buyers are being priced out of the real estate market by investors.
However, critics of negative gearing overlook the practical rather than hypothetical consequences of its abolition.
For example, when the Hawke Government abolished negative gearing back in 1985, it led to a dramatic reduction in the number of property investors in the real estate market and inturn the supply of rental properties.
As a result of this flight of investors from the property market, weekly rents throughout Australia surged by 37% and by a massive 57% in Sydney.
History shows that changes to negative gearing would underpin investor confidence in the property market and discourage people from buying investment properties.
The reality is that most advanced economies throughout the world provide tax advantage to people who buy property.
Australia is no exemption and negative gearing has allowed many hard working mum and dad investors to purchase rental properties and reduce their taxable income.
Without these tax incentives and rental homes provided by the private sector, Governments throughout Australia would be placed under huge financial pressure to provide social housing at a massive financial cost to the whole community.
At the same time, negative gearing encourages the construction of many new investment properties each year that creates employment opportunities and tax revenue for all levels of government throughout Australia.
While it is true that the number of first home buyers have declined recently, the reality is that house prices are driven by supply and demand.
A major defect in the Australian housing market over recent years has been the supply of housing and this can be corrected by more pro-active measures by all levels of government such as reducing red and green tape to reduce the cost for developers to bring on new housing projects at more affordable prices.
Providing affordable housing in Australia can become a reality through maintaining a proper balance between providing competitive rental homes through government tax incentives such as negative gearing and also increasing the supply of owner occupier properties by making it easier for developers to deliver new homes.
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