Back to Negative Gearing, page-27

  1. 7,308 Posts.
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    I will lay this out as simply as possible.

    1) Negative gearing distorts the housing market.
    2) Prices are higher than they would be otherwise because investors will pay a higher price if they believe they don't need to have a positive yield.
    3) If NG were abandoned then prices would settle at a level which provides a yield that's attractive versus other investments given the risks of the property as an asset.

    What would be the effect of removing NG only from existing properties?
    You could expect the price of existing properties to fall compared to new builds, because there was no NG available on existing. You might say, ah well, but how about when the owner of the new build wants to sell, isn't it going to lose value because there's no NG for the next buyer? Well yes I think that's true, but it will have the effect of focussing the investment market on fundamentals : what yield can I realistically get from this investment from renting it, rather than, what can I sell it for in the future. And yield is what ought to drive investment. The market must return to some sort of equilibrium in terms of yield, sooner or later.

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