As a buyers agent, I live and breath the state of Australia’s property market. But the recent debate around negative gearing and its potential abolition has had me thinking – do Australian’s know that property accounts for Australia’s largest asset class? And do they know what this means?
The facts might surprise you:
- Property – $5.5 trillion
- Superannuation – $2 trillion
- Shares – $1.5 trillion
So as our two major political parties battle out the pros and cons of negative gearing, what do you really need to know?
First up, those touting the benefits of negative gearing know what they are talking about. And the rest of them? Quite simply, they don’t have a clue.
The numbers don’t lie
The most current ABS data collected in 2011 reported that 1,764,924 Australians (of the approximately 22 million of us) owned one or more investment properties. This represents 7.9% of the population.
Of those 1,764,924 Aussie investment property owners;
- 5.75% own 1 investment property
- 1.42% own 2 investment properties
- 0.43% own 3 investment properties
- 0.16% own 4 investment properties
- 0.065% own 5 investment properties
- 0.068% own 6+ investment properties
So essentially, Mum and Dad investors (and no doubt a small percentage of single people) are providing a substantial amount of the rental property stock in Australia. Most of these investors aren’t fat cats trying to rip off the government. They’re just regular folk trying to get ahead and secure their retirement.
We’ve been here before
Negative gearing was withdrawn in the late 1980’s by Paul Keating under the Hawke government. The net result was rapidly rising rents and a sharp drop in supply. The Hawke government reintroduced negative gearing after two years as people stopped buying investment properties, and sold the ones they had in increasing numbers.
What property investors do is specialise in bearing market risks that many owner-occupiers and renters are either unwilling, or unable to take. Reducing incentives for risk bearing through our tax system will adversely affect the supply and demand of housing with uncertain implications for house prices and affordability.
If negative gearing is abolished again, the effect on renters will be far greater than the investor. The investor may panic and sell, or they may hold and increase their rents. Some sources suggest that up to 70% of property investors will take their risk elsewhere if negative gearing is abolished.
Don’t buy into anti-negative gearing hype
Don’t be fooled by the suggestion that first homebuyers will be able to break into a property market without negative gearing. They won’t. With major lenders imposing a lending criteria of 20% + Costs for a deposit and an 80% lend of the value of the property, it will be almost impossible for renters seeking to purchase within a 12km radius of Melbourne whilst paying rent.
Australia’s decision to abolish negative gearing won’t be mine. I stand firmly in the camp of supporting a property market designed to support housing affordability for all, including Aussie renters.