The reform of negative gearing has been debated for years as the gap between Australian’s disposable income and house prices gets bigger and bigger.
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00:00Negative gearing costs the Australian
00:02taxpayers a lot of money.
00:03Negative gearing is a term we hear
00:06bandied about often when it comes to
00:07Australia's housing crisis.
00:09Politicians have been debating reform
00:11for years as the gap between
00:12Australians' disposable income
00:14and house prices gets bigger and
00:17bigger.
00:17It's estimated that at current
00:19interest rates, people would need
00:21at least 50 per cent
00:23of their income to service a new
00:25mortgage.
00:26In simple terms, negative gearing
00:28occurs when the costs of owning an
00:30investment property like mortgage
00:32interest and maintenance exceeds
00:34the rental income it generates.
00:36Now, in combination with
00:38this negative gearing strategy,
00:41the ability to receive a generous
00:43discount on capital
00:45gains being taxed from investment
00:47property also made it a
00:49particularly attractive investment
00:52option in Australia.
00:53Investors use this loss to reduce
00:55their taxable income, while
00:57many believe it pays off as
00:59property values rise over time.
01:02And for most, it has.
01:04With the national median home value
01:06now more than $800,000,
01:08about 1.75 times
01:10higher than a decade ago,
01:12property investors are seeing
01:14significant returns.
01:16But it's potentially taken away
01:18from home ownership,
01:20going from the fact that there are
01:21more investors who are competing
01:23for property ownership against
01:25first-time buyers, say,
01:27but also because that additional
01:28demand for limited supply of
01:30property adds to the value
01:33of homes and makes them more
01:34unaffordable to buy.