Property Investment Property Scouts
House prices soar due to negative gearing?? So called experts get it wrong again
There are many theories as to why Australian housing prices have soared over the past decade, most of these so called experts look to peripheral factors with flimsy evidence to back up their claims.
Negative gearing is one of their pet factors where they claim it caused residential housing prices to soaring however, this has been government policy for over 25 years and their claims are flawed as I will explain later in this article. Negative gearing was originally designed to increase the rental housing supply and figures indicate that the policy is an outstanding success for both tenants and investors. Rental housing as indicated below in graph 1 now matches the home owners in value and any disruption to this policy will have major consequences of a downturn in the housing market.
The obvious cause of soaring housing prices is the collapse in interest rates over the past 8 years, falling by as much as 6%, from 7.75% in 2008 to 1.75% in March 2016 as indicated in graph 2. The collapse in interest rates allows home buyers to borrow more against their current homes or investment property thus increasing the value of the housing stock. This spiral upwards is to the despair of first home buyers who struggle to catch up with the ever increasing values. Retirees also suffer as bank interest is no longer an option for retirement income.
Any political party looking to change the current negative gearing policy, do so at their own peril as the stampede to sell early will have catastrophic consequences on the Australian economy and unemployment.
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