The debate over negative gearing continues to rage, with critics of Treasurer Jim Chalmers' recent budget changes arguing that limiting this policy will lead to skyrocketing rents. However, an expert perspective challenges this notion, suggesting that the link between removing negative gearing and rising rents has been 'debunked'. Instead, immigration is highlighted as a more significant factor in driving expensive rental markets.
The upcoming changes to negative gearing, effective from July 1, 2027, will restrict it to new builds only, preventing investors from offsetting annual rental losses against personal income. This shift, a broken promise from Anthony Albanese's campaign, aims to enhance intergenerational equity and assist young Australians in purchasing property. Critics, however, point to New Zealand's recent experience as a cautionary tale.
In March 2021, New Zealand's Labour government under Jacinda Ardern abolished negative gearing, removing the ability of investors to deduct interest expenses from rental income. This move, according to real estate coach Tom Panos, resulted in fewer rental properties, increased competition among tenants, and higher rents. New Zealand subsequently reversed the policy, acknowledging the unintended consequences.
Leith van Onselen, Macrobusiness Chief Economist, disagrees with Panos, arguing that the rise in rents in New Zealand was primarily due to a surge in immigration, similar to Australia's situation. Charts supporting this view show that rental growth peaked in 2023, coinciding with net migration, and both subsequently dropped sharply as immigration decreased.
Van Onselen further suggests that the abolition of negative gearing contributed to New Zealand's house price fall, exacerbated by high interest rates. Home values have plummeted by over 30% in real inflation-adjusted terms since their peak in 2021. However, Shamubeel Eaqub, a Kiwi economist, counters that negative gearing had no significant impact on rents or house prices, attributing the fall to high interest rates and a lack of supply.
Australia's own experience with negative gearing removal in 1985 provides a similar narrative. The Hawke Labor government's decision led to rental growth surges in Sydney and Perth, but real rents remained flat or declined in other capital cities. This suggests that the impact of negative gearing removal on rents is context-dependent and not universally applicable.
In conclusion, while the debate over negative gearing's impact on rents continues, the evidence from both Australia and New Zealand suggests that the relationship is complex and influenced by various factors, including immigration, interest rates, and supply. A nuanced approach to policy-making, considering these multifaceted factors, is essential to navigate the complexities of the housing market.
