Removing negative gearing would hit landlords, tenants hard.

By REIWA President – Damian Collins     https://reiwa.com.au/

Changes to negative gearing and capital gains tax are a hot topic for debate in this year’s Federal Election. The Australian Labor Party has made its intentions clear, having announced its plans to make changes effective January 1, 2020 if elected.

REIWA strongly opposes the decision to meddle with one component of our national tax system. Changing negative gearing and capital gains tax without properly considering all the consequences is a reckless decision, one that will significantly impact everyday Australians and further stifle Western Australia’s already struggling property market.

History has already shown that removing one component of a complicated system does not work. In the 1980’s when negative gearing was removed the impact was so great across the country it was reintroduced just two years later.

One of the biggest myths in property is investors are wealthy moguls with extensive investment portfolios. The reality is the vast majority are ‘mum and dad’ investors with less than two rentals who are utilising property investment to help secure their future. According to data from the Australian Taxation Office, 330,000 Western Australians own at least one investment property and of those, 215,000 rely on negative gearing to help offset losses incurred through owning a rental.

If prospective investors are no longer able to use this mechanism many will reconsider if property investment is financially viable, causing them to withdraw from the private rental market or seek alternative investment options.

This will have huge implications on the WA property market. We’ve already seen the value of investor loans decline 69% since 2015 due to the soft market conditions and subdued consumer confidence levels. Any changes to negative gearing or capital gains tax will only serve to further deter investment in the WA property market, which is the last thing we need.

Our local vacancy rate has declined to 2.3% from a high of 7.3% in a little over 18 months. If landlords are deterred any further from investing in the WA property market, it will be tenants who will ultimately bear the financial burden of this financial change, with a shortage of rental supply guaranteed to push up rent prices and reduce affordability – which is exactly what we saw happen in the 80’s.

A report released last month by SQM Research detailed how the Australian Labor Party’s plan to abolish negative gearing would negatively impact tenants. It showed rents would rise across the country by between 7% and 12%, with tenants in Brisbane and Perth likely to be the most affected.

Those vying for our country’s top positions seem to have little regard for the WA property market when considering such dramatic shifts in property taxation policy. This election, REIWA is calling for all contesting parties to commit to not tinkering with negative gearing or capital gains tax until a full government review into the implications has been conducted.

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