Calls for negative gearing review

Amid news that finding a rental property may have temporarily gotten a little easier with asking rents for units dropping 1.1 per cent during the first three months of the year, comes a warning that the easing won”t last.

Dr Andrew Wilson, the senior economist at Australian Property Monitors, says ongoing shortages of accommodation, low levels of new supply and continued inactivity by investors, will lead to upward pressure on rentals this year.

APM figures show weekly asking rents for units either fell or were steady across all capital cities in the first three months of the year.

Median weekly asking rents for houses remained unchanged in Sydney, Melbourne, Brisbane and Perth.

Minor relief was handed to house renters in Canberra with a 2 per cent fall, and in Adelaide to a lesser extent, where the asking rent for houses dipped 0.6 per cent.

The ongoing tight rental situation has led to renewed calls from two experts for the Federal Government to take a fresh look at negative gearing.

Dr Chris Martin, a senior policy officer at the Tenants” Union of NSW, says bluntly: “There”s a bunch of things that could be done to negative gearing that would go some way to changing what it currently does to our housing system, which is screw up house prices and distort the rental market to the disadvantage of low-income renters.

“We have such a large number of landlords who have small holdings, typically most of them [own] only one property, and they are amateur speculators,” Martin argues.

“They are more interested in being able to sell the place when they judge the time is right to either realise gain or lever up into some new, even higher-value property. And so their … strategy, depends on being able to get vacant possession when it suits them.

“Even more than our renting laws, it”s the nature of our landlords and their strategy that makes renting as insecure as it is.”

Martin says the tenants most acutely affected by a shortage of rental properties are low-income earners who don”t qualify for social housing.

The union has found backing in Saul Eslake, who recently took up a role as chief economist of Bank of America-Merrill Lynch Australia. Eslake has been following the Australian property market for more than three decades.

“Interests associated with landlords and the real estate industry more generally will always tell you that the abolition of negative gearing would be the worst thing that could possibly happen to tenants, not to them but to tenants, because they think it would lead to a landlord strike and huge increases in rents,” says Elsake.

“They sometimes argue that “look at what happened in 1986 when the Hawke Government temporarily abolished negative gearing for rental property investment”, which they allege was a surge in rents as evidence of their assertions.

“In fact there was a significant increase in rents in Sydney and to some extent also in Perth … but it was only in Sydney and in Perth and in other parts of the country, the rate of increase in rents either slowed or actually fell.

“The truth is that negative gearing was abolished temporarily everywhere and if the abolition of negative gearing was going to cause a problem then … rent should have gone up everywhere rather than in just two cities.

“That”s a sort of an urban myth that has been living for the last 25 years to the detriment of informed policy making.”

However, Eslake isn”t just advocating the abolition of negative gearing on investment properties.

“That would be quite unfair,” he says. “I mean why should property investors be denied tax breaks that would still be available for investors in shares or bonds or artworks or gold? So I think it should be abolished for everyone.

“I”d even support, as a compromise, what the Henry Review proposed, which is that expenses association with property should be deducted at the rate at which the income from property is ultimately taxed on i.e. at the capital gains tax rate, that would be, to my way of thinking, a reasonable compromise, even though it falls short of what I”d regard as the ideal.”

SOURCE: Domain.com.au- Carolyn Boyd http://news.domain.com.au/domain/blogs/talking-property/calls-for-negative-gearing-review-20120417-1x50i.html