What is negative gearing?

Australian Community Media

The reform of negative gearing has been debated for years as the gap between Australian’s disposable income and house prices gets bigger and bigger.

Transcript

00:00Negative gearing costs the Australian

00:02taxpayers a lot of money.

00:03Negative gearing is a term we hear

00:06bandied about often when it comes to

00:07Australia's housing crisis.

00:09Politicians have been debating reform

00:11for years as the gap between

00:12Australians' disposable income

00:14and house prices gets bigger and

00:17bigger.

00:17It's estimated that at current

00:19interest rates, people would need

00:21at least 50 per cent

00:23of their income to service a new

00:25mortgage.

00:26In simple terms, negative gearing

00:28occurs when the costs of owning an

00:30investment property like mortgage

00:32interest and maintenance exceeds

00:34the rental income it generates.

00:36Now, in combination with

00:38this negative gearing strategy,

00:41the ability to receive a generous

00:43discount on capital

00:45gains being taxed from investment

00:47property also made it a

00:49particularly attractive investment

00:52option in Australia.

00:53Investors use this loss to reduce

00:55their taxable income, while

00:57many believe it pays off as

00:59property values rise over time.

01:02And for most, it has.

01:04With the national median home value

01:06now more than $800,000,

01:08about 1.75 times

01:10higher than a decade ago,

01:12property investors are seeing

01:14significant returns.

01:16But it's potentially taken away

01:18from home ownership,

01:20going from the fact that there are

01:21more investors who are competing

01:23for property ownership against

01:25first-time buyers, say,

01:27but also because that additional

01:28demand for limited supply of

01:30property adds to the value

01:33of homes and makes them more

01:34unaffordable to buy.

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