If landlords lose the ability to write off losses on their investments, and current rents don’t cover mortgages and other costs associated with providing the property for lease, it is obvious that rents will have to be increased to the point those expenses are covered in full.
With fewer investors entering the property market because of the disincentive to purchasing existing housing, this means fewer properties available for those who can’t afford to buy a home to rent.
And because of Labor’s plan to restrict negative gearing to newly built dwellings only, this also means that the supply of rental stock will be compromised even further, as residential construction varies from area to area and tends to be concentrated, creating localised housing shortages in some areas and placing even greater upward pressure on rents that are charged.
If Labor’s policy triggers an economic downturn or compounds the effect of any recession that comes, this means even more competition for the reduced number of rental dwellings that are available as people losing their jobs are forced to sell their homes. This will place even further upward pressure on rents.
Over the past 12 months, average rents in Sydney and Melbourne, where investor activity has been concentrated under existing arrangements, rose by 2.3% and 1.4% respectively: these are the lowest annual rental increases since June 2006.
If the tax treatment of residential property investments changes in line with this policy, rents can be expected to rise significantly. With median rents already far higher in real terms than they were 30 years ago, further steep rises now could push an estimated 70,000 households into rental accommodation stress – and many of those could well end up being pushed into either social housing or forced to live on the street.
Those able to afford to continue to rent their properties may find that the extra burden of increased rents might just put their dreams of home ownership out of reach for good, as their ability to save for a deposit is made that much harder.
In fact, despite Labor claiming its proposals would make buying property easier for first home buyers, the probable outcome is that they won’t: and the likeliest buyers of any spike in existing properties coming onto the market are the richest investors best able to carry forward their losses – the very people Labor says it wants to reduce the benefits of property investment for.
For more information go to the Negative Gearing Affects Everyone website.