Curbing Immigration versus Negative Gearing, By James Reed

Leith van Onselen, at the mighty Macrobusiness.com.au, examines the vexed question of which is more detrimental to Australian housing affordability, negative gearing or mass immigration? Negative gearing occurs when the cost of owning a rental property is greater than the income via rent it generates, so it creates a taxable loss. And we all know what mass immigration is; we just have to step outside our door to trip over its fruits. Negative gearing increases house prices by stimulating investor demand. "Tax concessions like negative gearing have minimal impact on the rental market since they increase rental demand (by crowding out first home buyers) but also increase rental supply."

Mass immigration has a direct effect upon housing affordability, as migrants will need houses, resulting in increased demand for both houses and rentals, thus via supply and demand, this leads to an increase in the costs of both housing and rentals. Even with present high interest rates, mass immigration has driven up demand, and hence costs.

If Aussies are to have any hope of having homes, immigration needs to be radically chopped. This issue is discussed further by Chris Knight in an article at the blog today, "Immigration and the Housing Shortage: The View from America."

https://www.macrobusiness.com.au/2024/10/curbing-immigration-more-important-than-negative-gearing/

"A reader sent me the below meme, which neatly explains why curbing immigration is far more important for housing affordability than curbing negative gearing …

property investment via tax policies like negative gearing does push up house prices by stimulating investor demand.

Investors also outbid and crowd-out first home buyers, thereby lowering the nation's home ownership rate.

Indeed, there is almost a perfect negative correlation between the investor mortgage share and the first home buyer mortgage share, suggesting that when investor demand rises, first home buyers are necessarily crowded out.

However, when an investor crowds out a first home buyer, forcing them to become a renter, they also add to the supply of rental homes.

Therefore, tax concessions like negative gearing have minimal impact on the rental market since they increase rental demand (by crowding out first home buyers) but also increase rental supply.

High levels of immigration have a much more pernicious impact on housing affordability because it pushes up both house prices and rents.

Every additional migrant that arrives in Australia needs somewhere to live. Therefore, more people via immigration means greater competition for homes to purchase and rent, driving up the costs of both.

The recent record explosion of net overseas migration is a case in point. It has driven home prices to record highs, despite higher interest rates.

Asking rents have also surged.

The situation is especially dire for first home buyers, as the surge in asking rents has made it harder for would-be buyers to save a deposit at the same time as prices have surged higher.

The added negative impact on the rental market is why curbing immigration is more important for overall housing affordability than curbing negative gearing."