The home loan brokers at Smartline Rockingham are doing our best to keep clients informed about a big change for property investors. The Labor Party announced in late February that negative gearing would be restricted to new homes only. In addition, they are reducing the capital gains tax discount to 25%.
Even though we are just mortgage brokers, this is an important issue to us because it affects the “numbers” when applying for a mortgage. Also, investment loans have been “tightened up” by lenders, making it more difficult for many to obtain loans.
To help keep our readers from needless worry, here are three myths about negative gearing.
Myth One: Changes Will Hurt Small Property Investors
While only 90% of those who negative gear show incomes of less than $100,000 per year, a much higher percentage of those make more than $100,000 before their negative gearing is considered. When the numbers are adjusted, 50% of the benefits from negative gearing go to the top 10% in household income.
Myth Two: Negative Gearing Increases New Housing Supply
This isn’t as relevant because negative gearing is still allowed for new housing. However, the biggest driver of new housing supply is availability of land. Density restrictions in the inner and middle suburbs tend to restrict new housing. At this point, a growth-friendly council has more to do with supply growth than negative gearing.
Myth Three: Negative Gearing Stabilises Rent Prices
It sounds great for renters in theory: investors save money and pass it on to the renter. However, in any market, supply and demand always determine rent prices. If you currently have a negatively geared property that you can no longer declare as a loss, you probably aren’t going to be able to raise your rent high enough to compensate for the difference.