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22 December 2003

Negative Gearing

An investor says it inflates prices.

The Productivity Commission is wrong about negative gearing and stamp duty. Stamp duty poses a minimal problem for first home buyers compared to negative gearing. The Productivity Commission is shooting at the wrong target.

I am a property investor who purchases residential real estate and then rents the properties to low-income earners. If it were not for negative gearing I could offer properties to tenants at lower rents and/or with more facilities for a given rent.

When I am looking for properties to purchase I have to compete with other purchasers (‘negative gearers’) who are prepared to pay higher prices because they are able to deduct losses from their other incomes and can therefore pay less tax on their other income.

If I did not have to compete with the ‘negative gearers’ I could buy the same properties at a lower price and then I could offer properties to tenants at lower rents and/or with more facilities.

This is such an obvious fact that it is difficult to see how anybody could claim otherwise. It is equally obvious that if a homebuyer wants to buy a property they too will have to pay a higher price because they have to compete with people who want to negative gear their investment properties.

Therefore, negative gearing causes:

1. Higher property prices.

2. Higher rents.

3. Reduced opportunity for low income earners to buy their own home.

4. Property purchasers to save a higher deposit to make a purchase.

5. Property purchasers to have higher repayments or to repay over longer terms. The repayments or the term is further increased not only by the higher loan amount, but also by the extra interest payable on the higher amount. Negative gearing also increases the amount of stamp duty that must be paid on the higher price.

The Productivity Commission and the Federal Government should do all they can to stop negative gearing and to thereby assist all homebuyers and renters; and in particular to assist first homebuyers and low-income earners.

Negative gearing was severely curtailed in the United States about 20 years ago and the US will never return to negative gearing madness again. It is time we in Australia did the same in order to bring fairness to our property market.

Negative gearing can easily add more than $50,000 plus loan servicing costs to the price of an average home.

That is what creates a major problem for home buyers.

The Productivity Commission is shooting at the wrong target and budding first homebuyers are being hurt.

Peter Rowan.
South Golden Beach, NSW.

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