ALP Left faction pushes to change negative gearing to improve housing affordability for first home buyers

Extract from ABC News

7.30

By David Mark

Updated about 9 hours ago

Photo: Negative gearing critics argue the tax breaks for investors lock first home buyers out of the market. (ABC 7.30)

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Members of the ALP's Left faction are pushing for Labor to commit to cutting or modifying negative gearing.

Sydney City councillor Linda Scott, who will move the motion at Labor's national conference in July, said negative gearing is pushing up the price of houses and locking first home buyers out of the market.
"When you have stories of 40-year-olds needing help from their parents and grandparents in order to buy a house, you know we've got a crisis in housing affordability," Ms Scott told 7.30.
"And in cities like Sydney we are at a real crisis point."
Negative gearing is a tax deduction. It allows investors to deduct the cost of interest and other expenses like repairs from their taxable income if they make a loss on their investment — generally a rental property.
It is estimated the tax deduction could be costing the Government an estimated $5 billion a year in foregone revenue.
Negative gearing's critics, like Cr Scott, said it has created an unfair playing field.
"If you go to any auction in Sydney, you will see first home owners competing against seasoned market investors," Cr Scott said.

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"Removing negative gearing over time puts first home owners back on a more equal footing and hopefully allows more of them into the market.
"Negative gearing is driving up the cost of housing.
"What we need is to see housing affordability improve so that houses and rent can be affordable for every Australian."

Little room for first home buyers to enter market

That view is supported by property market analyst Louis Christopher, who said the percentage of first home buyers in the market is close to record lows.
"That's because this most recent recovery we've seen has been investor driven, predominately," he said.

Video: Watch David Mark's 7.30 report on housing affordability. (7.30)

"It has basically left little room for first home buyers to be able to get into the market."
Cr Scott said she has backing within the Labor Party for her move to debate negative gearing.
"There's broad support within the rank and file of Labor, the union movement and Caucus to have a look at the question of negative gearing and I'm trying to lead the push, along with many other members of Labor, to see a decision at national conference that over time removes negative gearing," she said.
Her position is backed by economist Saul Eslake.
"I think it is an economic issue and it produces bad economic outcomes," he told 7.30.
"I think it also does social harm, by exacerbating the difficulties faced by younger generations in aspiring to home ownership in the same way that their parents and grandparents would have done."
But others take a different view.

Negative gearing offers greater comfort for investors

Stephen Ryan is a 29-year-old investor with a growing property portfolio in Sydney and plans to buy more in Brisbane.
He is also a fan of negative gearing.
"It's basically just made me more comfortable with my investing decisions," Mr Ryan told 7.30.
"If I hadn't been able to utilise negative gearing I would have been waiting longer for purchases."

Photo: Stephen Ryan inspecting a potential property purchase. (ABC 7.30.)

The president of the Real Estate Institute of New South Wales, Malcolm Gunning, is another supporter.
"I think it has a lot do with underpinning the economy here in NSW," he said.
"The construction industry is one of the biggest employers here in the state, also it's one of the biggest taxpayers, both federally and state.
"Local Councils, State Government, Federal Government, all clip the ticket."
The Government is set to release a white paper on tax later this year which could yet examine negative gearing, but senior Government figures from the Prime Minister down have ruled out any changes.
And while Cr Scott said she does have support to debate the issue, the leader of the Opposition Leader Bill Shorten, has ruled out changing the negative gearing rules.
The reluctance to modify negative gearing may be ideological, but Mr Eslake also believes political pragmatism plays a part.
"No government, or party which aspires to be in government feels it can afford to alienate such a large proportion of the electorate and survive politically," Mr Eslake said.

"It has become a sacred cow."