Negative Gearing Property InvestmentNegative gearing is not a new debate in the Australian property market and wider national landscape. Often portrayed as a case of the ‘haves versus have nots’ or ‘the government picking on a Mum and Dad investor just trying to get ahead’, the debate rages, the headlines write easily – but the deeper issues are less often examined. Let us look a little bit at that now.

It IS a generational thing

If you are a first home buyer in your late 20’s or early 30’s you are not going to be looking at negative gearing like someone with an investment property in their late 50’s or early 60’s would be. From the perspective of a first home buyer negative gearing can seem unfair, unreasonable, and evidence the deck is stacked against those trying to get into the market for the first time.

Where this becomes a challenge is the reality that numerous factors account for the current expense of housing. Put simply, Australia is far and away a markedly different nation that it was 40, 20, even 10 or 5 years ago.

So, while negative gearing does impact the market – and so too foreign buyers and immigration – the growing urbanisation of Australia (with many young Australians moving from rural Australia to make a living in a capital city), the rise of an ‘investment class’ in Australia (where many Australians now plan not only to pay off their own home but buy another one), and also the shift in generational thinking from first home buyers from simply ‘buying a first home’ to ‘buying a great first home’.

To be clear: wanting to buy a first home in a great location is not wrong; it’s just also a reality when compared to generations prior young Australians standard of living is fair higher, and so too the cost that comes with it.

…but it is a complex thing

Just like changing the rules of a football game once the match is underway investors who have brought a house as an investment many years ago would not be delighted to hear of changes underway. Sure, right now a policy like that proposed by Labor at the last election (to end negative gearing on new homes 2017) would only impact a smaller quota of the market – but just like superannuation changes the Liberals proposed – the potential for the creep effect of change to eventually come and impact existing owners cannot be ruled out.

In turn, just the same as an understanding of a young first home buyer’s situation can be sympathised with, so too of a (still) young Australian who brought their investment property 10 years ago. They may’ve done so using the equity from their main house, they may still be paying off the investment – and while the market is always liable to change – a fair case can be made by them that stripping negative gearing would take a fundamental piece of architecture that allowed them to buy in the first place.

So, even if the policy would only apply to new homes now, undoubtedly many voted in the last election with the knowledge such a policy could one day just be expanded; just like other Australian ‘givens’ that the nation will one be a republic, the GST will rise above $10, and Queensland surely can’t stay perfect at rugby forever.

Applying new rules would not be clear cut

Many young people now buy with some form of help from their parents. This complicates the playing field of new rules in the negative gearing sphere. Further, while the headlines of national news may focus on the latest record sale in Sydney or Melbourne, the growing markets of Brisbane, Perth, and elsewhere in Australia affirm that were a nationwide policy of negative gearing introduced so too would it come with nationwide complications.

As Sydney and Melbourne, and Brisbane and Perth respectively exist on separate tiers – so when the former 2 are ‘hot’ the latter 2 shall be ‘cold’ in demand and vice versa – so too would negative gearing stand to impact fundamentally all markets across Australia.

This may not seem revelatory at first, but a first home buyer in Sydney or an investor in Melbourne who thinks the changes may be only be confined in impact your circumstances and suburb? – They’d need think again. The ‘knock-on’ effect of such a change would be diverse, broad, and varied with a rise in unemployment, economic turmoil, and governments around Australia even more strained in their budgets to meet costs without hiking taxes sharply.

Ultimately, engaging in futurology is always a risky prospect – and given none in Japan saw the famed property bubble coming in the late 1980’s – certainty in property can be especially elusive. Nonetheless though, a few careful observations can be made about the Australian market now that can be reasonably expected to impact in the near future.

In the main, whether it is the Labor Party taking a negative gearing policy to the next election – and then winning – or the recently proposed and privately-backed fast rail between Melbourne and Brisbane (that on account of private funding has a real chance of success and would offer new property just a short commute from the city to young first home buyers), or a slight market correction in years ahead; it appears likely some change factor shall occur in the market soon.

Is this a absolute and unquestioned guaranteed? No. But just ask yourself ‘would Australians give up on the ‘Australian Dream’ of owning their own home?’ If not, then the national outlook is undoubtedly set for a shift of pace in the months and years ahead.

Read our blog post Negative Gearing—Is It Holding Back Australian Property Investment for more information.

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