Capping Landlords’ properties could make renting worse

John Daley: Australia does not have large swathes of institutional landlords with multiple properties.
John Daley: Australia does not have large swathes of institutional landlords with multiple properties. Stefan Postles

 

Limiting the number and value of negatively geared properties owned by individual landlords could trigger an administrative headache for taxpayers, make renting even more unattractive and have little impact on housing affordability, according to housing experts.

Both the independent economic think tank, the Grattan Institute, and the Housing Industry Association warned the federal government must consider the unintended consequences of putting a limit on the number of properties investors can buy or imposing a dollar-value on the tax deductions claimed on negatively geared properties as part of a federal budget housing package.

The potential limits on multi-dwelling landlords has been an option investigated by the Turnbull government as it looks for a quick-fix housing affordability solution.

Worse for renters

But Grattan Institute chief executive John Daley said this type of negative gearing tinkering, with the aim of targeting the very wealthy, could actually worsen housing affordability.

“The political ‘pro’ is that the government could be seen to be doing something without actually having much effect because only 10 per cent of landlords own more than two properties,” he said.

“The big ‘con’, in both senses of the word, is that it would do little to help housing affordability and could make the situation worse for the third of the population who are forced to rent.”

Mr Daley said other countries, but not Australia, had large swathes of institutional landlords with multiple properties that allowed them to offer stable five- and ten-year leases to renters.

But Australia’s high number of single-property landlords – about 1.5 million people – meant those investors could not risk offering long-term leases in case they had to sell the property.

Add to that state-based land taxes on rental properties, there was little incentive for the very wealthy to invest in multiple properties compared to the higher returns from shares.

There would also be the complex administrative questions over imposing limits on existing landlords, potentially creating a two-tier landlord system in which new investors were limited on new purchases but older investors could keep their existing portfolios.

Housing Industry Association senior economist Shane Garrett said the HIA would argue against any change to the current arrangements because negative-geared investors supplied much of the finance for inner-city apartment developments needed for affordable housing in those areas.

Administrative nightmare

In the short-term, applying limits on the number of rental properties eligible for negative gearing or imposing a cap on the value of negative-gearing tax deductions would create headaches for the Australian Taxation Office, Mr Garrett said.

“It would add to the paperwork burden for taxpayers and there would be costs in terms of the ATO’s formulation process and recalibration of technology and the IT support,” Mr Garrett said.

Labor leader Bill Shorten said the easiest option would be for the government to adopt the Opposition’s plan to limit negative gearing to new properties.

“I think negative gearing has had its race for existing properties,” he said.

The real problem we are trying to solve here isn’t some political compromise with Malcolm Turnbull – it’s housing affordability.

“It’s very straightforward, why every Saturday should a couple and their parents who are keen to bid for their first home, face the unfair competition of investors and speculators who are getting a tax concession and a leg up to compete with them unfairly when it comes to housing affordability in the cities and towns of Australia?”

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