Melbourne’s population is growing at a record rate, putting an ever-increasing demand on housing. One outcome has been a tight rental market. For more than three years, vacancy rates have remained below the 3 per cent level that the REIV believes represents a balanced market.
Vacancy rates in the inner suburbs of Melbourne have been particularly low. A continuing shortage of rental homes shows the city requires greater private and public investment in rental accommodation.
Within this climate the Federal Government has asked the Treasury to review Australia’s tax system. This review, often referred to as the Henry Review (after Treasury chief Ken Henry) is reviewing every aspect of Australia’s tax system, with the exception of the GST.
Negative gearing will be one tax closely looked at. This is a positive taxation measure that helps encourage private investment in property for rental. It’s a good idea and should be retained.
It’s been suggested that by removing negative gearing, affordable property owned by investors would be freed up for first-home buyers and that, with increased supply in this market sector, prices would fall.
But any such movement would be only short-term, because the total amount of housing stock would remain constant, the number of dwellings for rent would decrease and investors would be discouraged from building new homes.
If negative gearing were removed or restructured, it would drive investors out of the rental-property market.
