I do agree that you can make a case against negative gearing, or any other income tax shelter for that matter. In the housing area it is equally valid to argue for the abolition of the capital gains tax exemption on owner occupied homes, and for the taxation of the imputed income derived from owner occupied housing. These lurks all benefit more affluent people disproportionately and distort personal investment decisions.

Negative gearing unarguably reduces income tax revenue. Some but certainly not all of this lost revenue is clawed back through other property taxes, particularly stamp duties and land tax, which are relatively high in this country. Capital gains tax will also tax half the capital gain, when an investment property is eventually sold.

I would also dispute some of the claims made about alleged "REIA lies".

The article claims that negative gearing does not help in the provision of rental accommodation because the majority of investors buy pre-existing dwellings, not new dwellings. Does this mean that if investors bought no new dwellings at all that they would be making no contribution to the supply of rental accommodation? Of course not. New and second-hand dwellings are close substitutes, and what happens is that many purchases of new dwellings are funded through an investor or owner occupier buying an existing older dwelling.

It is similarly claimed in the article that, if negative gearing was once again quarantined and a proportion of investment properties were sold, the properties would be sold to renters, thus leaving the rental supply-demand balance unchanged.

This is far from the entire dynamic.

A more likely scenario is that properties (especially rental flats) would also become harder to sell, and prices would fall (thus placing pressure on new home construction which would be less competitive). Rents would eventually rise but the entire dynamic could take quite a number of years. Negative gearing, like any other incentive, increases the supply of rental properties and tends to reduce both private rents and the need for public housing.

There are over forty different taxes that impact to a greater or lessor degree, on the price of a loaf of bread. Things that need to be also factored in, are fuel excise on each and every plant and harvest movement, from the grain-field to the table.
Similarly, a house has many taxes built into the cost structure including fuel excise.
One can start with the clay quarries that mine the clay for the bricks, the tax that is paid by those doing the digging and that paid by the clay miner. And sawn lumber doesn't grow like that!
Then there is the fuel excise component, as the clay/timber plaster board, roofing iron etc, is transported to the work site.
That paid by the transport operator, and their workers, when all other basic building materials, (taps, switches, door knobs, hinges etc) are delivered. Then we see a similar story with finishing plaster board, plumbing, wiring, paint and the usual white goods, carpet, turf, clothes line, fencing etc at the construction site.
Ditto reinforcing or building/roofing steel, and that paid by the construction site crew and all the companies in between.
And then there is company tax paid by the building co., the marketing co, the brokers, the banks and have I forgotten anybody?
And that's before you apply council fees, stamp duty and the ubiquitous endlessly cascading GST.
Even then, a finished house costs less than half what Joe public is eventually asked to pay, by the fee/commission collecting realtor, the profiteering land banker, professional developer, mortgage brokers and the mortgage supplying banker, all of which also incorporate another tax component or components!
These are the sort of nightmares, that have me banging almost endlessly, on broad scale tax reform and massive simplification.
We should never have to ever pay a tax component on a tax component, yet that's exactly what we are asked to do, time and again!
And then we wounder why we pay a 30% premium at the checkout!
Rhrosty.

Where one wonders are the rich landlords living off a dead cert? If the article and some of the comments are to be believed, that is?

There are many spruikers, but the residential property 'investors' one meets are sadly doing it hard, sacrificing their own leisure time and quality of life for an uncertain gain, but when? The risks are high, including the regulatory risks and the returns where obtained are abysmal.

GrahamY - fair point.. but my point also was that the stamp duty and other factors make moving too expensive and zoning laws often prohibit the emergence of apartment blocks on expensive land, in those desirable places you mention.. but there you, we've solved it.. now if only the policy makers would read online opinion.

rhrosty - I understand how that cracked analysis works. I've seen it before. But its cracked none the less. Tax does not take 40 per cent of a new house price or whatever it was.. a typical mistake is to count, say, the income tax paid by workers who built the house as part of the taxes paid by the house builders. It doesn't work like that. Its just salaries going out..

The problem with poor returns from property, are the reasons for investing. If it's just to write off tax, those returns can be negative or produce a loss.
If one is a bona fide investor, then there are any number of positive investments around,with small country towns near large resource projects being popular, along with steel framed homes, that still retain serous investment value, far into the average persons retirement years.
And a far better risk than say the American stock market, and or Leamen Brothers, Enron, HIH, Ansett, One Tell and many such others! And if anyone thinks that 2000 a week as rent from a single house, near a mining tenement is a poor return? I'd like to know what they think a good return should be?
That said, one can almost guarantee a very poor return by over capitalization or just investing in a capital city, where all the juice has been well and truly squeezed out of the market.
I suppose the best returns are earned by Gold coast developers selling off the plan to entirely unsophisticated investors? That and time share, which fortunately have been thoroughly exposed for what they usually are. Get rich quick schemes for very sharp operators? And get poor quick schemes that can lead to bankruptcy, for the unsophisticated unwary?
In the words of a well known song, you've got to know when to hold them and know when to fold them.
Rhrosty.

Except where crooks and shonks cheat their workforce, and have them effectively work for free, and indeed, supply materials for free! Labour costs are charged against every job!
And given a portion of those wages are unavoidable tax, they are also paid by the job, or future home buyer!
A fact which also applies to every contract/contractor and their fuel excise component, plus the ubiquitous and endlessly cascading GST.
Then we have to factor in the taxes paid by the manufacturers, their staff, (all of them) the wholesaler, and the retailer, who sells the PC items, hardware and the white goods, and it never ever ends there! There are transport merchants and their staff, all of who pay some tax as part of earning their livings, some of which along with fuel excise, is also charged against every job!
If this were not so, who do you think effectively pays all our tax? Or do you think it is plucked from thin air like a intrinsically worthless derivative? Wages are not separate from the job! They are paid for by the job or manufactured article!
And is eventually paid by as a passed on cost, by the intending new owner. Be it a house, a car, a plane or a boat, or any other man-made article!
Which by the way, cascades and amplifies, the manufacturer's tax component and that of the wholesaler, given all those taxes are invariably passed on and paid in every case, by the mug consumer/voter! Along with any applicable fuel tax component!
Just because hidden costs are not immediately apparent, doesn't mean they don't exist, nor is applying them, as part of forensic accounting, cracked.
In fact, applying them in total, as a forensic exercise, one sees that the total tax component, may be higher than 40%? Particularly in the state of NSW, which has more fees and charges than just about any other state.
And then we wonder why Sydney is now the most expensive city in the world, or why we have the highest median house prices in the English speaking world!
Rhrosty.