01 Mar 2014
Words Tim Admin

Narrowing the divide between tenants and investors is taxing

Leading government policy think-tank The Grattan Institute has called on government to ‘narrow-the-divide’ between property owners and tenants. They claim that on-the-whole home ownership levels are stable, but low income earners and young people are being left behind and government should remove tax ‘benefits’ from property owners. They consider benefits to be such things as negative gearing, and capital gains exemption from principle residences. They state that “Home ownership brings so many benefits that most individuals will want to do it – they do not need a subsidy. If governments want to increase home ownership and at the same time give renters a better deal, they should reject policies that reward those who already own homes while making life harder for those who don’t.” Removing tax deductions from investment property (ie: Negative Gearing) would be detrimental to property investors in my opinion. It may very well create a glut of cash flow negative property on the market as investors struggled to dump poor preforming property from their portfolios. How would this help tenants? The Grattan Institute seem to believe flooding the market with cashflow negative property while at the same time removing benefits from owning such property would somehow increase the number of people buying this property. The real question is: Why do people rent? Are they really renting because they cannot afford to buy? And if so, would removing all the financial incentives (such as tax exemption) from buying property make it more attractive? Why would a negatively geared property with high body corporate, rates and rapid depreciation charter that was designed as an investment somehow be an ideal purchase for a tenant? Particularly one already on a low income? It seems like a foolish way to ‘narrow-the-divide’ to me. So why do people rent? Is it really because they cannot afford to buy or is it because they prefer the freedom and non-commitment that comes with renting? Daniel Edmonds from Brisbane’s Hyaline Finance commented that: “You can buy a family sized home, within commuting distance of the CBD for under $300,000 these days. As a first time buyer the total deposit, including a buffer for legal fees, building and pest reports etc is around $18,000 (with the zero stamp duty rate and the ability to add mortgage insurance to the loan). This is about 1/3 of the average Gross annual wage (historically peanuts). The loan repayments on a property for $300,000 should be less than $400 a week. The primary driving factor behind declining home ownership (particularly among first time buyers) seems to be cultural, not economical in my opinion. ” We have historically got very affordable housing compared to average incomes, interest rates are at record lows and as the Grattan Institute pointed out themselves: there are considerable tax and financial benefits to owning a home over renting. Despite this people are still choosing to rent. Would removing all the financial incentives from home ownership really change this for the better? I hope we don't have to find out.