As we approach the federal budget witching hour, reports have emerged over the past week that the government is seriously considering
reforming Australia’s negative gearing rules, by grandfathering arrangements for existing investors and potentially only allowing negative gearing on newly constructed dwellings.
Reforms of this nature would be a wonderful development, not just for housing affordability, but also the budget.
According to the Grattan Institute
, quarantining negative gearing losses would save the budget around $4 billion per year initially, falling to a saving of around $2 billion per year over the longer term. It would also remove some speculative demand from the housing market, taking the pressure off prices, improving housing affordability and increasing the rate of home ownership.
The Housing Industry Association's claim that the removal of negative gearing would reduce the supply of rental affordability is also complete bunkum. Reserve Bank of Australia data clearly shows that the overwhelming majority of investors -- almost 95% -- buy pre-existing dwellings, not newly built dwellings, and that the proportion of investors buying new dwellings has fallen spectacularly since negative gearing was re-introduced in September 1987 ...
Moreover, the amount of investor funds going into new housing has barely shifted in 25 years, whereas investment in pre-existing dwellings has skyrocketed ...