A recent research commissioned by Housing Industry Association (HIA) reveals that restricting access to negative gearing for residential property would reduce investment in housing, erode housing affordability and put upward pressure on rents.

Backing the positive impact of negative gearing, the report also concluded that abolishing stamp duty on conveyances should be the top priority for housing tax reform, making housing more affordable for both renters and owner-occupiers.

HIA Managing Director Shane Goodwin described discounting residential negative gearing in isolation as a retrograde step for tax reform in terms of both efficiency and equity. He explains that new housing is one of the most highly taxed sectors in the economy, and the removal of negative gearing would only worsen the situation and discourage investment, which would, in turn reduce housing supply and increase the cost of renting.

On the other hand, negative gearing promotes private investment in the rental market, thus stimulating economic activity and taking the pressure off social housing and the public purse.

According to Mr Goodwin, considering the ageing workforce and future pressure on services, policy settings such as negative gearing that promote wealth creation and self-sufficiency in retirement should be promoted.

He added that negative gearing was not the domain of the so-called ‘wealthy investors’; figures from the ATO demonstrate that 74% of tax payers receiving rental income have a taxable income of less than $80,000.

The research paper titled ‘Economic Impacts of Negative Gearing of Residential Property’ was commissioned by HIA and conducted by Independent Economics.