Negative gearing isn’t unique to Australia; it’s a widely
accepted tax principle applied in many countries to encourage investment across
various sectors.
In the United States, for instance, investors can deduct
interest expenses from income on rental properties, helping to offset the
financial burden of maintaining and holding property assets.
This provision supports the housing supply, encourages
investment in real estate, and makes rental properties more accessible to the
market.
In recent years, negative gearing has been removed in New
Zealand as part of a tax policy reform intended to curb property speculation
and address housing affordability.
However, this change quickly highlighted the policy’s
importance.
Without negative gearing, many investors found it unfeasible
to hold rental properties, which led to an exodus of investors from the rental
market and, ultimately, a sharp rise in rents due to dwindling supply.
Recognising these impacts, the New Zealand government has
now begun reintroducing negative gearing, acknowledging that the removal did
not make housing more affordable for buyers but instead strained the rental
market, putting additional financial pressure on renters.
This reversal serves as a clear example of how negative
gearing can be critical to rental market stability; a lesson relevant here in
Australia.
In the United Kingdom, investors still benefit from similar
tax offsets, albeit with certain caps on interest deduction limits.
These limits were introduced to balance tax revenue needs
with the recognition that rental investors play an essential role in meeting
housing demand.
Internationally, governments acknowledge that discouraging
investment through restrictive tax changes often leads to unintended
consequences on rental availability and affordability.
The global re-evaluation and, in New Zealand’s case,
reintroduction of negative gearing highlight its function as a vital tool for
supporting housing supply and rental market stability.
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Jason Gwerder
Tuesday, 11 February 2025
