Study: Repeal of Negative Gearing Will Improve Home Ownership

Couple looking at new houseDo you think a repeal of the negative gearing policy will lead to more homeowners in Australia? Melbourne University economists believe in this scenario.

An estimated 75% renters and owner-occupiers in the country will benefit if the Reserve Bank of Australia (RBA) axes the policy. Home ownership will increase since there will be more affordable properties.

Policy Changes

Home prices would fall by 1.2% and rents would only post marginal growth, according to the Melbourne University economists Yunho Cho, Shuyun May Li, and Lawrence Uren. Home ownership in Australia current stands at 66.7%, which is the lowest figure since the mid-1950s.

As for the economy, the RBA’s decision to scrap the policy will barely affect growth. At the same time, it will control investor activity and prevent multiple home ownership among the top 20% of earners. Meanwhile, home prices in the country are expected to drop in 2018, which could be a good time to pursue renovations instead of planning a sale.

Housing Prices

The Australian Prudential Regulation Authority’s restrictions on interest-only loans will primarily cause lower home prices this year, according to CoreLogic head of research, Tim Lawless. The restrictions will mostly affect Sydney and some parts of Melbourne.

Homeowners in these regions are better off with renovating their homes with upgrades, such as sliding cavity door sets or expanding kitchens. Aside from renovations, Lawless said that this year will be a good time to reduce their repay debt, as interest rates remain low. The RBA would likely keep it that way for now since any increase would counter a housing market slowdown.

Whether or not the RBA considers the study’s suggestion, it is clear that most Australians will favour the idea of scrapping negative gearing to improve their chances of buying their own house.

About the Author