Don’t blame negative gearing for all price growth

In “A collapse in house prices won't necessarily be so bad”, Jessica Irvine opines for The Sydney Morning Herald | Fairfax:

And yet, chances are, things will get back to normal at some stage. And when they do, we will still live under a tax system that encourages excessive investment into property and supersized price gains. We could, of course, take this opportunity to fix that broken housing tax system. To reduce concessions for negative gearing and capital gains on housing. To abolish stamp duty in favour of a broad-based land tax.

I don’t like stamp duty but I don’t agree that our tax system is totally broken. It’s easy to blame property price growth on negative gearing but it isn’t quite so simple. There are many countries around the world that see price growth in their large cities and they don’t have a negative gearing system quite like ours. Furthermore, there isn’t price growth everywhere in Australia. Just take a look at regional towns - sometimes they don’t see price growth for decades.

So where is there consistent growth? Our state capitals. People conglomerate to the capitals for many reasons including access to work. The simple reason that properties there go up in price is that they are in high demand. With our population growth, and people still moving to cities, it’s no wonder that with high demand and limited supply, prices move up. Building costs also continue to march up, aggravating prices further.

Apartments and houses don’t fund themselves. Property investors have to take the risk and the burden of owning a property. On the other hand, many people simply prefer to rent rather than own. Without investors that can afford to provide the capital and take the risk, there wouldn’t be places to rent!

Having been a tenant for many years, a home owner and then a property investor - I can see each side of the story. Yes it’s definitely possible to make money on property (I have also lost money on property) but at the end of the day, whether you win or lose, owning property is work (think bills, maintenance, keeping on top of repairs, dealing with tenants and agents etc). It’s a risk with no guarantee of success, and often means having to make sacrifices in order to be able to invest in the first place. It seems only fair that to those who take the burden, a fair reward ensues.

We’ve already had to rethink so many aspects of how we live during this crisis. Let's add housing, and the provision of safe, secure and affordable homes, to the list. If the crisis proves anything, it’s that we are more capable of change – of inventing new ways of doing things – than we know.

And there really is no place like home.

I can definitely agree with this - I have kids and I worry about how they will be able to afford a home too, as my parents did before me. I feel certain I’ll need to help them, just as they helped me. In any case, I agree that we should always ask whether the tax system and duties we’ve put in place still makes sense today and to find new ways of making home ownership possible for the next generation.

This pandemic has taught us that office workers can still get work done without actually going into the office. It has taught us that we can all be more self sufficient and cope well enough with online deliveries instead of needing to have all types of shops at hand. And perhaps enough employers will learn that remote working is viable for many of their employees and that with fast internet available to all, we don’t all need to congregate in large offices within large cities.