Will Removing Negative Gearing Make the Housing Crisis Worse?

Negative gearing has returned to the political spotlight, following reports that the federal government has tasked the Treasury with exploring a possible overhaul of the billions in tax concessions granted to property investors in Australia.

While removing negative gearing might appear to be a straightforward solution, it could have unintended consequences. Instead of addressing the housing crisis, it may worsen the situation, making housing even less affordable—especially for renters across the country.

Let’s dive deeper into why abolishing negative gearing could be counterproductive...

What is Negative Gearing and Why Does It Matter?

Negative gearing allows property investors to offset losses from their investment properties against their taxable income. This system has played a significant role in encouraging not just the wealthy, but everyday Australians, to invest in real estate.

It’s important to recognize that negative gearing is not just a "tax loophole" for the wealthy. Instead, it’s a legitimate incentive that supports the rental market, helping to maintain a healthy supply of rental properties and keeping housing options available for many Australians.

The Reality: Removing Negative Gearing Won’t Make Housing More Affordable

The idea that abolishing negative gearing would immediately lower housing prices is an oversimplified view that overlooks the complexities of the real estate market.

In reality, history shows that eliminating this tax incentive would likely reduce the number of rental properties available. When property investment becomes less appealing, fewer people are motivated to invest.

This would lead to a shrinking supply of rental properties, driving up rents as demand exceeds availability. With the rental market already under pressure, discouraging investment could make things even worse for tenants who are already grappling with high rent costs.