Negative Gearing and Housing

How Australia's tax rules let property investors deduct rental losses from income, combined with capital gains discounts, and the debate over their effect on house prices.

Australian housing is among the world’s most expensive relative to incomes.

Negative gearing

Investors can deduct losses on rental properties (when interest and costs exceed rent) from their other income, reducing tax.
This is called negative gearing.

Capital gains discount

Since 1999, individuals pay tax on only 50 percent of capital gains on assets held over a year.

The debate

Critics say these rules encourage speculation, push up prices and benefit wealthier investors.
Supporters say they increase rental supply.

Politics

Labor proposed limiting negative gearing in the 2016 and 2019 elections and lost the 2019 election, making reform politically risky.

Other factors

Zoning limits and slow approvals.
Population growth.
Low interest rates for years.

Lesson

Tax rules can shape housing demand and wealth inequality.

The loss-making flat

An investor's apartment earns less rent than her loan interest. She deducts the loss from her salary for tax purposes, hoping to profit when she sells.

Thinking tax rules don't affect house prices

Negative gearing and capital gains discounts can boost investor demand.

Key takeaways

Negative gearing lets investors deduct rental losses.
A 50 percent capital gains discount applies since 1999.
Critics say they push up prices.
Reform attempts proved politically risky.