ACOSS: Negative gearing boosts housing costs, not the economy

24 September 2014

ACOSS Chief Executive Officer Dr Cassandra Goldie has today highlighted the risks posed by negative gearing for housing affordability and economic growth in response to a report released by the Housing Industry Association this week.

"Negative gearing distorts investment activity to favour speculative investment in housing and other assets funded by debt and puts upward pressure on house prices. It must be a high priority for reform in the tax white paper next year," said Dr Goldie.

"Negative gearing adds to the boom and bust cycle in housing when what we need is stable investment to strengthen supply. Together with other distortions in the tax system, it also contributes to the boom and bust cycle in the economy as a whole. The RBA may be forced to use higher interest rates to calm the housing market." said Dr Goldie.

"ACOSS advocates for deductions for expenses relating to passive investments in housing, shares and other similar assets to be quarantined to offset income from those assets only, including capital gains, rather than all personal income as is currently the case. We propose that this change be implemented progressively, with existing investors grandfathered."

"With ambitious economic growth targets to be met, and as we transition from growth led by resource investment, now is the time we need to be channeling activity towards productive investments for broad-based economic growth, not contributing towards inflated housing prices."

The Independent Economics report released this week, commissioned by the Housing Industry Association, concluded that restricting ­access to negative gearing for residential property would reduce ­investment in housing, erode housing affordability and put ­upward pressure on rents. It also argued that stamp duty and developer levies contribute to higher housing costs.

"It is difficult to make sense of HIA's claim that removing the ability for people to negatively gear their investments would reduce housing supply when more than 90% of negatively geared investment is in existing properties, adding heat to the market, but not additional stock," Dr Goldie added.

"Investors cannot on the one hand complain about the barriers to their children entering the housing market, including the stiff competition from investors in the market, while defending the very concessions that create the affordability problem in the first place.

"The tax treatment of housing must be reformed as a package. Negative gearing is just one part of the problem. ACOSS supports HIA's call for the abolition of stamp duty, which distorts housing choices, creates market inefficiencies and contributes to the high cost of housing. One option is to replace stamp duty with a broad based land tax which offers a much more efficient and equitable revenue source.

"While a significant proportion of investors with income of less than $80,000 a year access negative gearing, households in the top income quintile receive ten and a half times the benefits of those in the bottom quintile - $3,800 per year compared to $364 per year respectively.

"The tax treatment of savings should be addressed consistently to close tax avoidance opportunities and remove distortions that channel economic activity towards unproductive assets."