The truth about the cost of living in Australia

The truth about the cost of living in Australia

What do negative gear-ers think of Labor’s plan to wind back negative gearing?

Around 1.3 million Australians take advantage of the popular tax break, which allows property investors to reduce their taxable income when the rental isn’t enough to cover the mortgage repayments and other costs.

Critics have blamed negative gearing for contributing to Australia’s housing affordability crisis, with investors borrowing money to speculate on rising prices while enjoying the temporary tax deductions.

The Government argues now is the worst possible time to tinker with the policy, given house prices have already started falling, and claims Labor’s plan will crash the housing market if it wins the next election.

Maureen Pound has three investment properties, two in Melbourne and one in Moreton Bay, worth a combined $1.5 million. All three are negatively geared, one “quite substantially” and the other two only slightly.

“I am by no means a wealthy person,” the 50-year-old said.

“I did it by saving. I’ve worked hard and I feel there’s a common view out there that there’s all these rich people buying up the properties, which I think is a fallacy. I get annoyed that investors are seen as these ‘greedy rich baby boomers’.”

The executive coach purchased her first property 17 years ago with a $20,000 deposit. While house prices have skyrocketed since then, she says there’s “this expectation that people should be able to enter the market” with their dream home straight away.

“A friend of mine is buying her first house for $850,000, with help from her parents, because she wants to live in a certain suburb,” she said.

“There are still cheap houses around but they want to jump (into expensive ones). Out west you can still get some great properties for under $400,000, only 15-20km from the city. It’s not like you have to live in the sticks.”

Ms Pound worries there may be “unintended consequences” from Labor’s plan.

“I’m not too concerned for myself because I think they’ll make sure it doesn’t have retrospective impact,” she said.

“I’m all for it being reviewed if it’s done sensibly, but they should look at the long-term impact, not just the short-term gain.”

The single mum-of-two said while it reduced her taxable income, people “sometimes get caught up” in the emotion and “don’t understand” that it still means the investor is losing money.

“Yes, it’s a tax benefit but it wasn’t the main reason,” she said.

“You’re taking a risk and losing money for the longer-term benefit of capital growth. The main reason was not to have to rely on the Government for a pension when I retire, to have enough to support myself. I do not spend a lot of money but put a lot into my properties instead of superannuation.”

IT worker Joseph Skewes takes the opposite view. The co-founder of online start-up Secure Nest owns two negatively geared investment properties worth a combined $625,000. He thinks Labor’s planned changes are a good thing but “don’t go far enough”.

“I’m probably not very typical of real estate investors,” the 34-year-old said.

“Even though myself and my wife invest in property, I think in particular in the eastern states the amount of speculation and investment crowding out homebuyers is just ridiculous. The policy should balance home ownership.”

His issue with Labor’s policy is that investors will still be able to deduct losses from investment property against other kinds of investment income.

“All this other income that can be used, business income, trust income, it’s typically skewed towards those with greater wealth,” he said.

“It creates this sort of two-tier investor market by dividing investors into those that have a wage or salary income and wealthier people who might have investment income.”

Mr Skewes says it’s difficult to predict whether restricting negative gearing will drive down prices.

“It could certainly discourage investors and have an impact on prices,” he said.

“But I think their capital gains tax changes are more likely to have a negative effect.”

Even if the change is made, he says he would still see real estate as a good investment in the future.

“Our intention would be to have properties that are paying us rental income over the long-term,” he said.

Mark Boldiston, owner of Melbourne jewellery store Lord Coconut, owns three heritage apartments in the CBD worth a combined $1.7 million, only one of which is still negatively geared.

The 50-year-old doesn’t understand why losses from rental properties should be treated differently to any other investment.

“We started a small business eight years ago and business expenses and any initial losses were tax deductible,” he said.

“People invest in different products for wealth creation, whether it’s starting a business, investing in shares or purchasing a property. All three traditionally have been valid ways to increase wealth and each of them should be treated equally from an income and expenditure perspective.”

Mr Boldiston describes himself as Gen X and says he never complained about the baby boomers.

“My first property I purchased to live in was one of the smallest flats I’ve ever seen,” he said.

“I didn’t expect the world. It was a stepping stone. It appears the younger generation don’t necessarily want to take the same steps. You can still buy a small one-bedroom apartment in the city for under $400,000.”

While he doesn’t think Labor’s plan would push down prices significantly, he warns that even if it does, it will be the next generation of buyers left out in the cold.

“If house prices drop 30 per cent, first homebuyers aren’t going to get a loan from the bank,” he said. “The people who are going to get a loan will be people who already have properties and a track record of repayment.”

Location Property Group director Ajay Valanju owns 21 properties across NSW, Victoria and Queensland worth $13.5 million, the “bulk” of which are negatively geared — and he supports Labor’s plan, in theory.

“I think Labor’s intentions are good in that they want to try and encourage home ownership over and above investment,” the 41-year-old said.

“However I think the critical issue is actually providing the supply of houses to cater for the high growth of our population. Negative gearing was initially brought in to encourage the private sector to invest in housing and it’s worked quite successfully.”

He worries that Labor’s policy could dampen housing construction, echoing concerns raised by the Master Builders Association.

“If there’s a shortage of properties it could potentially have the opposite intended effect,” he said.

That, he argues, could drive up prices again.

“In the short term it will push down prices, there’ll be less demand from property investors, but I think medium to long term it will actually reduce the supply of houses into the market overall,” he said.

“So if investors can hold on during that period I think it will bounce back.”

frank.chung@news.com.au