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Negative gearing: Pros and Cons

By Michael Walkden


Negative gearing has stolen the spotlight in recent discussions in the media. As always, there are two sides the story but only one prevails. The prime minister’s recent announcement that changes to negative gearing are off the table has settled some nerves and ruffled some feathers. What were the arguments on both sides?


For a definition of what negative gearing is, read our recent article titled Negative gearing vs. Stamp duty – who wins?, but, in a nutshell, a negatively geared property costs more to keep than it earns in rent. The aspect that some commentators take issue with is that this loss can then be offset against other forms of income.

This makes purchasing a property more affordable, and enables investors to access long term capital gains, even if the property isn’t turning a profit in the short-term. Organisations such as the Australian Council of Social Service (ACOSS) say that this tax relief, combined with capital gains tax discounts, is fuelling speculative purchases of real estate in Australia, driving up prices for everyday home buyers.

“Negative gearing and the tax break for capital gains don’t improve housing affordability; they make it worse by fuelling home price booms like the one in Sydney right now. Less than one tenth of negatively geared housing investments are for new properties, the other nine tenths bid up the price of existing housing,” said ACOSS CEO Dr Cassandra Goldie.


The Housing Industry Association (HIA), Property Council of Australia and Real Estate Institute of Queensland (REIQ) were quick to react to ACOSS’s statements, citing independent research with results far removed from those of the ACOSS report.

Graham Wolfe, executive director of Industry Policy and Media at the HIA noted that under the current policy settings, changes to residential gearing would likely reduce housing affordability and lower the living standards of Australians.

“New housing is one of the most highly taxed sectors in the economy, and the removal of negative gearing would only make that situation worse and discourage investment. This would in turn reduce housing supply and increase the cost of renting,” he said.

The Property Council of Australia noted that negative gearing isn’t a tool used only be wealthy, as claimed by ACOSS, but is a feature of many Australians’ long term plan for financial security.

“The data is conclusive – negative gearing in Australia is primarily used by average workers who in the majority, own only one investment property,” said Nick Proud, executive director of Residential for the Council.

Antonia Mercorella of the REIQ notes that not only would removing negative gearing affect these everyday investors, but the knock-on effect for private renters would be staggering. She stated that over a third of the Queensland population is in rental accommodation and negatively impacting on the supply of that housing would have serious consequences.

Figures from independent research commissioned by the HIA show that in 2011/12 over 79 per cent of those with rental properties as investments earned less than $100,000. Roughly three-quarters of investors, according to the official taxation stats used in the research, earn less than $80,000.

This is in contrast to ACOSS’s research, which states that close to a third of those with negatively geared properties are earning in excess of $500,000.


Prime minister Tony Abbott has ruled out changes to negative gearing, much to the relief of those in the housing industry. There are still plenty of options in the tax discussion paper which could affect those with homes for sale or rental properties, but for now, negative gearing isn’t one of them.

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