Aussie Home Loans founder John Symond has called on the federal government to consider scrapping negative gearing for investors in the luxury home market, warning that it was putting a hole in the budget while doing little to promote the construction of new homes.
After Joe Hockey yesterday handed down the tax discussion paper, which indicated that negative gearing and capital gains tax concessions were probably inflating house prices, Mr Symond said negative gearing should be capped.
“The intention of negative gearing when it was introduced was not to facilitate a $10 million- $20m house to rent out, get a 2 per cent yield and write the rest off on negative gearing,” Mr Symond told The Australian.
“It needs tweaking on capping the benefits.”
But he warned that scrapping the tax break in the broader market would affect housing supply.
“The downside with messing with negative gearing is that it would stifle investor appetite and there would be an even bigger problem in the supply of housing. The lack of an orderly supply strategy for housing has brought on price increases in cities like Sydney,” Mr Symond said.
The property industry yesterday promoted the benefits of negative gearing and capital gains tax concessions for investors in residential property after the discussion paper said that both measures encouraged more investment purchases, probably causing price inflation.
Susan Lloyd-Hurwitz, chief executive of Mirvac Group, one of Australia’s largest home builders, said housing could cost more if negative gearing was abolished.
“Negative gearing has, for a long time, supported average Australian families; it is a key measure that enables low to middle-income earners to save for retirement,” Ms Lloyd-Hurwitz said.
“There is a strong argument that, by removing it, it would have an adverse impact on housing affordability for renters and homeowners.”
Yellow Brick Road chairman Mark Bouris said prices would drop in the short term if negative gearing was abolished.
“You are going to lose a total market; it will stop a large percentage of the demand for housing,” Mr Bouris said.
“If they are trying to make house prices go down then get rid of negative gearing, but that will have an economic impact on the county.
“The construction industry would start to suffer and as a result of the construction industry suffering households’ consumption would change and it could well have an impact on GDP, which is a problem.”
Craig Treasure, chief executive of listed housing developer VillaWorld, said negative gearing was not a tax distortion.
“Negative gearing is not the mechanism that is inflating property prices, it is land supply, infrastructure costs and the ability of government to deliver well-planned land with affordable infrastructure,” Mr Treasure said.
He pointed to results of higher land releases in Melbourne compared with Sydney. “A very good house and land package (in Melbourne) is $450,000 and then in Sydney the same is $750,000,” he said.
Bank of America Merrill Lynch chief economist Saul Eslake has been a long-term critic of negative gearing for existing dwellings, arguing it does nothing to create supply.
But he also said yesterday that capital gains tax concessions should be reduced. “I can’t see a policy rationale as to why income from speculating should be taxed at a lower rate to income from working,” Mr Eslake said.
The Property Council of Australia chief executive Ken Morrison said that while a wide-ranging debate on tax reform was welcome, it had to be based on facts, not false perceptions.
“Negative gearing is one of the most misrepresented and misunderstood parts of Australia’s tax system,” Mr Morrison said, adding that most users of negative gearing earned less than $80,000.
“Any move to abolish negative gearing would be a blow to Aussie battlers and have an adverse impact on household savings and housing affordability,” Mr Morrison said.
This article first appeared in The Australian Business Review