Negative Gearing Under Threat

According to a report today on SBS News and the Gratton Institute the Federal Government is looking at an initial  saving of $4 billion per annum, scaling down to $2 billion simply by removing the option for negative gearing on existing property purchases.   There will be a grandfather provision for existing investments.

The idea for negative gearing was originally created in order to stimulate investment and create more housing stock however only around 8 percent of the savings went back into new housing. Data released by the RBA shows an even dimmer view stating almost 95% of investors buy pre-existing dwellings  and while the level of investor funds going into new dwellings has barely moved over the past 25 years their activity in existing dwelling has ‘skyrocketed”.   As a result negative gearing has slanted the market on existing dwellings away from home ownership  and into rental property.

The Gratton Institute suggest that this decision would take pressure off prices and increase the level of home ownership.  Of course recent property buyers will be less impressed.  However restricting negative gearing it is expected that this will have an immediate positive outcome for new housing stock while dramatically improving the budget bottom line.

In the end will depend on whether the vested interests of the housing lobby wins out over what appears to be good common sense



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