July 29, 2016
Post election update: rental property
Now that the federal election is behind us, many property owners and investors are considering whether the outcome will affect the local real estate landscape – including the rental property market.
In the lead up to the election, negative gearing was a key issue. Negative gearing was introduced in Australia in the 1980s as a means to provide an appropriate level of rental housing. At the time, the government provided approximately 25 per cent of rental housing. Today, that proportion has declined to less than 12 per cent. Thus as a method of moving rental housing away from a government-provided service, negative gearing has been remarkably successful. Around 30 per cent of all households rent in Australia and most of that housing is provided by private investors.
Prior to the recent federal election, as part of their campaign, The Labor Party proposed several tax changes that would tighten negative gearing and the capital gains tax discount. If they won the election they pledged to restrict negative gearing to new houses only. Capital gains tax concessions would also be reduced from 50 to 25 per cent. This economic policy, Bill Shorten said, would encourage the building of many more new homes each year and thus increase housing supply. It would also help lower costs for renters. Many investors were not convinced and some commentators even suggested that such a policy could see property prices fall by up to 15 per cent and rents rise by 6 per cent.
Now that the Coalition has been returned to government, the existing negative gearing laws will remain unchanged. With this, investors and buyers in general, have already returned to the market with improved confidence and the impact on renters is minimal. Private ownership of rental housings continues to be extremely efficient, with owners generally keen to accept market rental rates to ensure their properties remain fully leased.
Yet Australia's debate about negative gearing is far from over. With the cost of home ownership continuing to rise, there will be pressure on every government to tackle housing affordability – through negative gearing changes or other measures. A 'watch this space' status continues.