ABC Fact Check investigates whether abolishing negative gearing in 1985 caused rents to surge. During the period negative gearing was abolished rents notably increased only in Sydney and Perth. Other factors, including high interest rates and the share market boom, were also contributors to rent increases at the time.
As property prices continue to rise across Australian capital cities, in particular Sydney, the debate around how to address housing affordability problems has intensified.
Sydney house prices have jumped more than 6 per cent since the beginning of the year, increasing pressure on first home buyers.
The Reserve Bank has raised concerns that “ongoing strong speculative demand” from property investors will exacerbate the run-up in housing prices and raise the risk of big price falls.
Negative gearing, a tax deduction for rental property investors, is an area of contention.
But Treasurer Joe Hockey says if negative gearing is abolished, there could be other serious consequences.
“If you abolish negative gearing on investment properties, there’s a strong argument that rents would increase,” Mr Hockey said on the ABC’s Q&A.
Mr Hockey said that in the 1980s, when negative gearing was briefly removed, there was a backlash from investors who increased rents to “replace the lost income” negative gearing had provided.
“The net result was you saw a surge in rents,” he said.
Mr Hockey has made similar claims a number of times in the past two months. On April 28 he said: “If you were to remove negative gearing you would see an increase in rents and I think that hurts lower income Australians who may be renting those homes.”
However, during the period that negative gearing was abolished real rents notably increased only in Sydney and Perth – where rental vacancies were at extremely low levels.
This is inconsistent with arguments that negative gearing was a significant factor, with negative gearing likely to have a uniform impact on rents in all capital cities.
At the same time, high interest rates and the share market boom of the mid 1980s increased consumer demand for rental properties, encouraged existing investors to pass on high mortgage costs to renting consumers, and discouraged additional investors from investing in the rental property market.
While the rent increases in two cities did coincide with the temporary removal of negative gearing tax deductions, it is unlikely that change had a substantial impact on rents in any major capital city in Australia.
Mr Hockey’s claim doesn’t stack up.
