A Positive Look at Negative Gearing

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There has been a lot of very negative debate about negative gearing lately – what I call ‘negative smearing’ surrounding an old political football that seems to raise its head every time we are approaching an election.

Now I couldn’t give two hoots about short sighted political point scoring but I am interested in the principles and a broader long term perspective.

You see, according to the experts, Australia is facing a long term national housing shortage. We are also facing a retirement living crisis as superannuation and the shrinking pension will not go close to maintaining our lifestyles when we stop work. So how can both of these issues be eased?

Let’s add in here that our government is not building homes anymore. That means it’s up to everyday Aussies like you and I to bridge the gap.

Our government knows they need to make it worth our while to increase housing supply while keeping rents at affordable levels, hence they incentivise us to invest in rental properties. They do this through a clever combination of tax depreciation, negative gearing treatment and capital gains discounts that makes it both affordable and worthwhile. And when structured well, you can use your rental property to help pay off your home loan years earlier. In the meantime, your rental property increases in value – a double whammy.

Now I don’t know about you, but I’m not seeing much wrong with this as a double barrelled strategy to ease the housing shortage while improving retirement incomes?

But let’s picture the alternative? Abolish negative gearing and increase capital gains tax on rental homes. Based on simple demand and supply economics, rental housing supply will reduce which will force rents up for those that can least afford it.  And the 1.26 Million aspiring Aussies looking to secure their future will be forced to shift from safe affordable housing to ever increasingly volatile global stock markets – just ask those who focused on super and equities who were looking to retire after the GFC how they went with that – a lot of them still have to work.

But we don’t have to imagine it – we just need to cure our growing collective Alzheimer’s and look back to the mid 1980’s.  At that time the Hawke / Keating federal government were forced to reinstate negative gearing treatment in under 2 years due to the negative impact on the rental property market and property market generally.

In the frantic info overload times we live in, I like to keep things simple – so if something ain’t broke then don’t fix it – in this case the pollies are trying to use negative gearing as a misguided excuse to attack housing affordability and high income earners but the losers will be renters and average earning Mums and Dads. Let dead dogs lie.

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