Australia’s Prime Minister Malcolm Turnbull is facing pressure from within his own cabinet to take action on “negative gearing”, following a backlash to a report which showed property prices in Sydney and Melbourne were among the highest in the world.
Negative gearing occurs when a property investor takes a short-term loss on their property to get ahead of the market; they take in less income than what their mortgage costs, but the increase in property value over time outweighs the initial shortfall.
The practice is used by many property investors, but is criticized by those looking to enter the property market for the first time, as it often means they can be “priced out” by investors looking to add to their portfolio.
Despite findings which showed Sydney and Melbourne were among the most expensive to live in worldwide, Prime Minister Malcolm Turnbull on Friday said making changes to negative gearing tax concessions would not make housing more affordable, as many of those who negatively gear their investment properties were younger or middle income earners.
“We have looked at it,” Turnbull told Macquarie Radio on Friday.
“The reality is the vast majority of people who negative gear, that is to say who buy a rental property and offset the loss against their wage or salary, the vast majority are Australians on middle incomes.
He said the solution to the housing affordability crisis would be to simply build more houses.
“There is a tendency for people on the left to overlook the fundamental reality which is that the reason housing affordability has deteriorated is simply because demand has been consistently exceeding supply,” Turnbull said.
“We have not been building enough dwellings, and that is one of the reasons why I have taken a very different approach to my predecessors — both Labor and Liberal –in terms of federal government’s role in cities.
However, Turnbull is facing pressure from within his own cabinet. Sydney MP John Alexander told News Corp that Turnbull was “playing politics” — refusing to take action on the issue simply because Labor said they would.
Alexander said “the proof was in the pudding” after the report showed Sydney and Melbourne were among the most expensive cities in the world.
“That was pre-election and we have now passed the election, we have had the hearing completed into housing affordability and the findings have been tabled,” Alexander said.
Meanwhile the opposition has also stepped up the pressure on the government to make owning property in Australia easier.
Opposition spokesperson Anthony Albanese told the Nine Network on Friday that keeping high-earning property investors in the city at the expense of a younger generation could drive people away.
“The government itself, this time last year, was speaking about getting rid of the excesses of negative gearing. They know that they’re there, they know that young people are going to an auction and competing with investors for the same house that is pricing them out of the market,” Albanese said.
“We run a risk in this city of Sydney and other cities of simply saying to the younger generation ‘you will never own your own home’.” Enditem