Changes to negative gearing vital for Gen Y to get ahead

Negative gearing has been popping up a lot in the media lately. Some people argue that it’s a positive thing that promotes property investment and stimulates the economy, while others argue that it inflates house prices and therefore prevents young, wannabe first-home-buyers from entering the market.

My view sits somewhere in the middle.

I don’t believe that axing negative gearing all together is the answer, the main reason being that property investors would most likely seek to recoup their losses by increasing rents. This outcome would of course make home ownership even more unattainable for young people, particularly in areas close to our major cities. It’s well known that properties purchased further out from capital cities have lower capital growth rates long term than their established, inner city counterparts.

That being said, some sensible tweaks to negative gearing are certainly needed.

My view is that negative gearing as it stands should only apply to the first investment property purchased. The tax benefits associated with any subsequent properties purchased, should be significantly reduced. This solution would likely see the housing market cool down slightly without ripping the heart our of a major cog in our tax system.

Not sure how negative gearing works? Contact Personal Finance Advisor Melbourne for more information.