Investors are increasingly relying on tax claims to support their properties.
Landlords across Greater Sydney are shifting a significant share of the cost of their properties onto taxpayers, with new data revealing over half of city investors are using negative gearing to support their expenses.
Experts said the high number of negative gearing claims indicated many investors had taken on excessive amounts of debt in the hope of getting value growth on their investments.
And the result was an explosion in the total cost of the controversial tax incentives, with total net losses on rental properties exceeding $3 billion a year in Greater Sydney alone.
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Analysis of newly released Australian Taxation Office figures showed 51 per cent of Sydney investors made a negative gearing claim in the 2022/23 financial year, the most recent data made available.
This amounted to nearly 300,000 landlords reporting a net loss on their investments – despite many purchasing their properties years ago and benefiting from record increases in rents this decade.
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SQM Research director Louis Christopher said high claim numbers were reflective of the high holding costs of owning Sydney property and investors were reporting net losses for longer.
A decade ago it would have taken about five years for the typical rent on an investment property to exceed the holding costs, but this has ballooned out to more than a decade for current buyers, Mr Christopher said.
“After 10 years, you’re still not there. Still not positively geared,” he said.
Tenants Union of NSW chief executive Leo Patterson Ross said the high volume of negative gearing claims pointed to an unsustainable debt climate – and the impact was flowing through to renters.
Investors, often buying at competitive auctions, are pressured to take on more debt, leading to higher negative gearing claims, Mr Patterson Ross said. Picture: Sam Ruttyn
“People are being pushed and pressured to take on massive debts basically on the gamble that home prices will rise,” Mr Ross said.
“It creates this situation where everyone, even owner occupiers, are taking an investment bet and are relying on prices going up forever. This puts a lot of pressure on people who haven’t bought.
“It also boxes in governments who want to address housing affordability but know people will be upset if prices go down and they don’t want their loans to be at risk.”
Mr Patterson Ross said a mass of landlords servicing expensive loans and relying heavily on negative gearing to make their investments stand up was a poor outcome for renters.
“It means many landlords are on a tight budget. It is hard to take meaningful steps to improve a home and keep it maintained if so much of your income has to go to the bank first.
“With all this talk of rent reforms, we are ignoring the elephant in the room. The biggest problem for landlords trying to deliver decent housing isn’t (policy) requirements or settings. It’s the size of the loan they have been pushed into taking.”
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Source: ATO.
Landlords reporting losses were most common in Western Sydney, but there were also multiple pockets of the eastern suburbs and northern beaches where negative gearing claims were frequent – and high.
Many of the postcodes with the highest number of reported rental losses were concentrated in the popular Hills District in Sydney’s northwest, according to the ATO data.
They included the Kellyville and Rouse Hill area, where more than 8,000 landlords reported a net rental loss that they could offset against their taxable income. This was about two thirds of the landlords in the area.
About 6,000 landlords in nearby Baulkham Hills reported a loss on their rental properties accounting for just under 60 per cent of local investors.
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This home in The Ponds recently sold for $1.505m. The area has one of the highest rates of negative gearing.
Landlords in The Ponds, an emerging area in northwest Sydney, along with nearby Schofields and Tallawong, were the most likely to be negatively geared, with about 74-76 per cent of landlords reporting a loss.
Other areas were more than two thirds of landlords reported a net rent loss were Claymore and Blairmount in the outer southwest, plus a cluster of suburbs north of Mount Druitt, in Sydney’s west, such as Plumpton, Colebee, Oakhurst and Hassall Grove.
Claims were the least frequent in areas like the Hawkesbury region.
Real Estate Institute of Australia president Leanne Pilkington said what stood out about the biggest postcodes for investor numbers was that few were overly affluent.
“The conversation is always around rich landlords and this data is demonstrating that the landlords really are just mum and dads,” she said.
Mr Patterson Ross added that it was likely that many of the people leasing out properties in much of Sydney were first-home buyers who had previously lived at their addresses but needed to rent them out to afford the repayments.
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