Negative gearing plays an important role in our community

Limiting negative gearing to newly constructed properties and doubling capital gains tax remains a central plank of Federal Labor's policy platform. Their argument being that the current legislative rules around negative gearing leads to inequality in the community.

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

An important cog in Australia's tax system

Negative gearing is so deeply entrenched in our vast and complex tax system (it's been part of it for more than 100 years) and therefore interlinked. Tinkering with one part of the system will inevitably impact other areas in a manner we can't really accurately predict.

The claim that 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.

New-build only proposal not practical

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, importantly, have first home buyers competing with investors for homes in these newer areas. This is what ultimately pushes up the cost of house prices.

The idea, therefore, that Labor's plan helps affordability in newly-built suburbs, where all future investors will buy, defies logic. Their 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; hardly socially responsible.

The plan actively discourages investment in existing housing stock from the private sector, leaving it to state governments, who 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 them into a retreat.

Mum and dad investors to feel the burden of any changes

About 80 per cent of investment properties are owned by 'mum and dad' types who only have 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, then 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.

For more information about REIWA's position on negative gearing, view the reiwa.com Advocacy page.