A government order for Treasury to investigate the impacts of limiting negative gearing to two properties is headed towards “dumb policy”, experts have warned.
Albanese government plans to explore limiting negative gearing benefits to investors with two or fewer homes have been labelled “dumb” and a serious risk to renters and first-home buyers.
The federal government has asked treasury to explore capping the number of homes investors can own, and claim negative gearing for, at two.
Fewer than 100,000 Australian property investors had more than two homes negatively geared in the latest publicly available data from the Australian Taxation Office.
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But the figures show the numbers are rising.
In the 2022 financial year there were 83,850 Australians with more than two negatively geared properties. Another 177,357 had two properties claiming the tax break.
Meanwhile, there were more than 135,000 who had two or more properties either in a neutral position, or positively geared — and therefore not using the tax.
By the 2023 financial year the number of Australians with at least three negatively geared homes had risen to 97,322. Just under 209,000 had two homes claiming the cut.
The number of investors with three or more investments but not using tax deductions was 117,357.
Interest in a rental property, by overall net rent outcome
| Property interests | Net rent loss | Net rent neutral or profit | Total individuals | Net rent loss | Net rent neutral or profit | Total individuals |
| no. | no. 2021–22 | no. 2021–22 | no. 2021–22 | no. 2022–23 | no. 2022–23 | no. 2022–23 |
| 1 | 688,312 | 932,351 | 1,620,663 | 810,875 | 812,125 | 1,623,000 |
| 2 | 177,357 | 250,663 | 428,020 | 208,978 | 214,423 | 423,401 |
| 3 | 52,274 | 80,064 | 132,338 | 60,718 | 68,977 | 129,695 |
| 4 | 17,747 | 29,886 | 47,633 | 20,602 | 26,156 | 46,758 |
| 5 | 7,024 | 12,506 | 19,530 | 8,163 | 10,674 | 18,837 |
| 6 or more | 6,805 | 13,172 | 19,977 | 7,839 | 11,550 | 19,389 |
| Total | 949,519 | 1,318,642 | 2,268,161 | 1,117,175 | 1,143,905 | 2,261,080 |
Source: ATO
With growing expectation the Albanese government will look at changes to capital gains tax reductions being claimed by property investors in the May budget, the nation’s top property investment experts are warning that the government’s apparent plans will both fail — and make things worse for would-be market entrants and renters.
Property Investor Council of Australia chair Ben Kingsley said looking at capping the number of properties “would be a dumb policy”.
“That’s a stupid idea, and it won’t do what they want,” Mr Kingsley said.
“They are better off putting a cap on the total amount you can claim.”
PICA chair Ben Kingsley says limiting negative gearing by property number is ‘stupid’.
The professional investor noted capping numbers of homes would simply incentivise more people to create companies to buy properties, where negative gearing would be likely to be protected, effectively circumventing any changes.
It would also lead to scenarios where investors were more likely to pursue cheaper homes, forcing them into competition with first-home buyers, as these homes generally achieve the highest rental returns as a share of the cost of the home — making it easier to get to a point of being positively geared.
Rents would also likely surge as investors sought to get investments paying for themselves, rather than being out of pocket.
“So the people they are trying to help is who they will hurt the most,” Mr Kingsley said.
He added that while there were fewer than 100,000 investors negatively gearing homes in the most recent tax data, that number would likely surge in the 2024 and 2025 financial years as a result of a proliferation of “next generation buyers agents” who had been extolling loop holes and buying in trusts to allow investors to purchase more residences.
The Albanese government has asked Treasury to investigate capping negative gearing at two properties. Picture: NewsWire/ David Crosling.
Mr Kingsley said he supported reforms, in particular for capital gains tax reductions, but is advocating the government make changes that reward long-term investors who are providing consistent rental home supply.
Currently investors gain a 50 per cent deduction to capital gains tax if they are held for at least one year.
The PICA proposal would see investors receive no discount if they sold a home after one year, a 10 per cent cut to their tax bill for homes owned up to two years, and ultimately the current 50 per cent cut if they held the property for at least five years.
Mr Kingsley said this would help ward off property flippers and speculators who were driving prices up rapidly in short periods.
However, he indicated that the most important change to remedy housing and rental affordability was to build more homes — which has not been going well.
Australia is currently about 60,000 new home builds short of annual targets as it pursues a National Housing Accord goal of building 1.2 million homes in the five years to mid 2029.
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