Investors, taxation and the housing boom

Abstract

In recent years considerable attention has been paid to the activity of investors in private rental housing. Underpinning this interest has been the perceived effects of changes during the 1980s to the tax treatment of investment in private rental housing. Of particular interest has been whether or not landlords should be able to ‘negatively gear’, or deduct from their taxable income the interest losses they incur on the rental properties. According to real estate lobby groups, the federal government's decision in July 1985 to ‘quarantine’ negative gearing in residential investments decimated the supply of private rental housing, and this in turn was said to be the prime reason for escalating rents and tightening vacancy rates in some capital cities. The campaign by the real estate lobby groups received considerable media coverage and eventually led to one of the few policy backdowns by the current federal government. In August 1987, and in an otherwise very tight budget, negative gearing was fully reintr...