Over the past week, a number of articles have been published by Australian media outlets on taxation, stimulus packages, and of course, negative gearing. This follows the launch of the HomeBuilder scheme, one of multiple packages aimed at stimulating economic activity during the coronavirus fallout. Recent ATO figures have also fuelled commentary, with the Sydney Morning Herald exclaiming that “the cost to Australian taxpayers of negatively gearing rental properties had climbed to $13.1 billion ahead of the 2019 election…”
One year ago, our CEO Dr Tony Hayek published one of our most-read research blog articles titled “Why negative gearing is a community service.” A couple of months earlier, the recurring political debate on the issue had been temporarily put to rest with a landslide Coalition victory. Tony’s argument was that the 30.9 percent of housing stock privately rented takes the burden off government supplying new housing for those who cannot afford to buy. Despite Labor abandoning their policy, some of their ideological contemporaries are still claiming that investors not only muscle out would-be homebuyers and condemn them to a life of renting, but also cost the nation by reducing net tax revenue. What should we make of this?
If we’ve been in touch lately, you’d know that I’m currently in the UK doing some graduate study. This has exposed me to the UK property market, as well as many other global markets. According to the UK Office of National Statistics, a quarter of London households are social housing, a quarter privately rented, and the rest owner-occupiers. This means there are more than 850,000 social housing dwellings in London alone. With the 2016 Australian census reporting just 302,396 social housing units nationwide, London has almost triple the amount of social housing of our entire nation.
In a scenario where Sydney had the same proportion of social housing as London, the number would have to increase from about 70,000 to 450,000. It would also have to grow each year as our population continues to exceed even the highest-range estimates of the Australian Bureau of Statistics. This means not just countless billions of taxpayer dollars redirected to acquiring public housing dwellings, but also billions of taxpayer dollars redirected to managing and maintaining them. The 2017 Grenfell Tower disaster is just one example of how this can go awry.
The home ownership and tax differences between the UK and Australia tell us that the absence of negative gearing isn’t the silver bullet some seem to still think it is. Even in our most unaffordable city, home ownership is considerably higher than it is in London. I’d remind those who are still critical of negative gearing that abolishing it would likely lead to increased demand for social housing more than it would help the rate of home ownership.