Property Investment plays a major role in consumer confidence

Negative Gearing | 0 comments | by admin

I have recently made comments in the public domain that as the complicated debate about negative gearing and capital gains tax continues amongst politicians, one certainty about real estate investment is that it plays a major role in consumer confidence and economic stability.

As our biggest industry is in a post mining-construction boom, property underpins Australia’s economy.

I believe that people consider the arguments about changes to negative gearing in the run up to the Federal Election, its important to keep in mind that last December more than 34 per cent of buyer demand came from investors. If you damage that segment of demand, it’s unrealistic to think family house prices won’t be affected.

Investors and renters tend to prefer older style properties. If negative gearing is restricted to newly constructed property, the dynamics of a third of the real estate marketplace will become uncertain. Economists anticipate decade long impacts leading to lower house prices, higher rents, rising unemployment, lower council revenue and lower stamp duty receipts for government, which could affect a broad range of services.

With the bulk of Australia’s family assets held in the family home, falling house prices would affect the confidence that is a critical driver of economic growth and sustainable employment. When values fall, homeowners defer spending on renovations, appliance and furniture purchases, and other activities that stimulate the whole economy and generate jobs.

While it is reasonable to review the fairness of the current negative gearing/capital gains tax arrangements, the Reserve Bank has indicated it would rather change capital gains tax arrangements than negative gearing because the right to deduct the legitimate expenses incurred when earning income is an important principal of Australia’s taxation system.

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