In the midst of Australia’s housing crisis, the debate around negative gearing and capital gains tax is intensifying.

These tax policies, which have long benefited property investors, are now being scrutinised for their potential role in alleviating the country’s housing crisis.

Negative gearing, which allows property investors to deduct losses from their taxable income, has long been a cornerstone of Australia’s property market. It encourages investment, but critics argue it drives up house prices and disadvantages first-time buyers.

“There’s no question that negative gearing helps landlords offset costs, but if it’s removed, we could see significant shifts,” says Todd Madgwick, Kollosche’s Head of Property Management. However, he cautioned that scrapping the policy is “not the silver bullet some might think.”

The capital gains tax (CGT) discount, which enables investors to pay tax on only half of their gains when selling a property, faces similar criticism. Introduced in 1999,it was intended to boost investment in various sectors, but has largely benefited property investors.

Todd points out that changes to these policies could have a ripple effect on the rental market.

“If you remove these incentives, rents could rise, particularly because a substantial portion of rental properties are owned by investors who rely on these tax breaks,” he says.

For tenants, the potential for rising rents is a key concern. “When negative gearing was briefly abolished in the 1980s, rents surged in cities like Sydney and Perth,” says Todd. He noted that reducing the number of available rental properties would inevitably increase competition, driving up costs for tenants. “It’s a delicate balance – if rental stock decreases, tenants will face higher rents, particularly in high-demand areas like the Gold Coast.”

Todd also highlighted the broader implications of policy changes for the rental market. “Investors are already dealing with rising interest rates and increased regulation,” he says. “Removing negative gearing could push more landlords out of the market, shrinking the rental supply and making it harder for tenants to find affordable housing.”

“There’s no question that negative gearing helps landlords offset costs, but if it’s removed, we could see significant shifts.”

While landlords and tenants are often viewed as opposing sides in the debate, Todd sees a more connected future. “Many tenants are potential future investors,” he explained. “If rents continue to rise, it will be increasingly difficult for renters to save for deposit and transition into home ownership.”

As the Federal Government considers reforms, Todd urges caution. “Removing negative gearing alone won’t solve the housing crisis,” he said. “Any policy changes must be carefully considered to avoid negative consequences for both landlords and tenants.”