Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
Housing is front and centre in this election campaign, and a flood of opinions is swirling around how to solve the crisis. One of the least realistic comes from the Greens: scrap negative gearing and freeze rents.
Their proposal reveals a deep misunderstanding of how negative gearing works and the long-term benefits it brings – not just to investors, but to the broader economy. Let’s start with the basics.
Negative gearing simply means that when the costs of owning a rental – interest, maintenance, land tax, insurance – exceed the rent it earns, the investor can offset this loss against other income. Most negative gearers today are in the 30% tax bracket – not the top one. So, if they lose $10,000 a year, the tax deduction is worth about $3,000. The remaining $7,000 is paid by the investor. It’s hardly the ‘rort’ that critics claim.
This is a long-term play. Consider a common scenario: someone buys an investment property, and over time it moves through three phases. In the first five years, it’s negatively geared and might cost the government $15,000 in forgone tax. In the next five years, it’s neutrally geared: no deduction, no tax. From year ten onward, it becomes positively geared, producing income and tax revenue for decades.
Fast forward 35 years. The investor reaches pension age. The property has appreciated, but they fail the asset test and miss out on the age pension. To fund retirement, they sell – and get hit with a capital gains tax bill. That’s another big payday for the government. For a modest up-front cost, the return to Treasury is substantial. It’s not a loophole – it’s delayed revenue.
Now imagine if the Greens also froze rents. What happens then? Landlords still face rising costs, but their income is capped. Over time, maintenance gets deferred, properties deteriorate, and tenants suffer. It’s happened everywhere rent controls were tried – New York, San Francisco, Berlin. Supply dries up, quality crashes, and renters end up with fewer options and worse outcomes.
The principle is simple: the more hostile you make property investment, the fewer rentals will exist. And when supply falls, rents rise.
But the most absurd comment came from Greens MP Adam Bandt, who claimed share market volatility would push Australians to abandon shares and rush into property, driving prices higher. That ignores how super works.
Australians have over $4 trillion in super – much of it in shares – and most of it is locked away until age 60. You can’t just cash it out to buy a house. And experienced investors don’t panic in downturns. They ride it out – that’s investing 101. In fact, we recently saw the biggest single-day gain in the share market’s history. Volatility is normal. It’s no excuse for panic-driven housing policy.
Then there’s the claim that abolishing negative gearing will reduce house prices. Maybe it would. Maybe not. But investor confidence is already fading. New restrictions, higher costs and more red tape have taken a toll. That’s one reason rental supply is shrinking – and rents are rising.
And what about affordability? In Queensland, the median house price is about $950,000. Stamp duty on that is $32,500 – a huge hit before you’ve even moved in. That’s a massive burden for first home buyers.
If governments really want to help people into the housing market, they should reform stamp duty and increase supply. Those are the kinds of changes that actually make a difference. Blaming negative gearing might win headlines, but it solves nothing.
About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.
