Mod­er­ate ap­proach is best

Pilbara News - - Property - Hay­den Groves

Lim­it­ing neg­a­tive gear­ing to newly con­structed prop­er­ties and dou­bling capital gains tax re­mains a cen­tral plank of Fed­eral La­bor’s pol­icy plat­form.

Its ar­gu­ment is the rules around neg­a­tive gear­ing lead to in­equal­ity in the com­mu­nity.

Any plan to change the neg­a­tive gear­ing pro­vi­sions poses a risk to our econ­omy.

Neg­a­tive gear­ing is deeply en­trenched in our vast and com­plex tax sys­tem (and has been for more than 100 years) and is there­fore in­ter­linked. Tin­ker­ing with one part of the sys­tem will in­evitably af­fect other ar­eas.

The claim neg­a­tive gear­ing is the main rea­son for push­ing up house prices and af­fect­ing af­ford­abil­ity is un­true.

It is the cost of con­struc­tion and in­fra­struc­ture, com­bined with plan­ning is­sues, that is mostly re­spon­si­ble.

Fed­eral La­bor’s pol­icy of al­low­ing neg­a­tive gear­ing for new dwellings is a deeply flawed pol­icy that will sim­ply en­cour­age more ur­ban sprawl, de­liver hastily con­structed hous­ing prod­ucts and have first-home­buy­ers com­pet­ing with in­vestors for homes in th­ese newer ar­eas. This is what ul­ti­mately pushes up the prices.

The idea, there­fore, that La­bor’s plan helps af­ford­abil­ity in newly built sub­urbs, where all fu­ture in­vestors will buy, de­fies logic. Its plan is ac­tu­ally a dis­in­cen­tive to sup­ply rental ac­com­mo­da­tion in the estab­lished mar­ket.

Un­der La­bor’s pro­posed pol­icy, ex­ist­ing hous­ing stock would be ig­nored as an in­vest­ment op­tion, ul­ti­mately putting pres­sure on the sup­ply of rental stock in estab­lished ar­eas where most peo­ple want to live. As a re­sult, rents would in­evitably rise.

The plan ac­tively dis­cour­ages in­vest­ment in ex­ist­ing hous­ing stock from the pri­vate sec­tor, leav­ing it to State Gov­ern­ments, which are al­ready un­der pres­sure, to de­liver more af­ford­able hous­ing.

The last time a govern­ment tried to abol­ish neg­a­tive gear­ing, it was back in sev­eral months later as the voter back­lash from soar­ing rents and fall­ing prop­erty val­ues in WA and NSW fright­ened it into a re­treat.

About 80 per cent of in­vest­ment prop­er­ties are owned by mum-and-dad types who have only one in­vest­ment prop­erty.

La­bor’s pro­posal is hardly a tax on the wealthy and as­sumes all prop­erty in­vestors are seek­ing to avoid pay­ing tax. In­vestors are of­ten at­tracted to prop­erty in­vest­ments that ei­ther break even or are pos­i­tively geared where they pay tax on the in­come.

If the cur­rent for­mat for neg­a­tive gear­ing is too gen­er­ous, per­haps we need to con­sider a cap on the amount of losses that can be claimed against in­come, or sim­i­lar tweaks.

Ei­ther way, a more mea­sured and mod­er­ate ap­proach to the is­sue is needed here. Hay­den Groves is the pres­i­dent of the Real Es­tate In­sti­tute of WA.

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