Negative Gearing: A Policy That Rewards Property Speculation Over Homeownership

Every year, the Australian government hands billions of dollars in tax concessions to property investors - many of them already wealthy - while first home buyers struggle to save deposits for houses that seem to get further out of reach with every passing month. This is negative gearing: one of the most expensive, most debated, and most persistently defended tax policies in the country.

If you've ever wondered why housing in Australia feels so broken, this is a good place to start.

What Is Negative Gearing, Exactly?

Negative gearing occurs when an investor borrows money to purchase an asset - most commonly residential property - and the costs of owning that asset (mortgage interest, maintenance, property management fees, depreciation) exceed the income it generates in rent.

Under Australian tax law, that net loss can be deducted against the investor's other income - typically their salary. So if you earn $150,000 a year and your investment property runs at a $20,000 annual loss, you only pay income tax on $130,000. The government effectively subsidises your investment loss.

This isn't inherently unusual - many countries allow some form of loss deduction for business investments. What makes Australia distinctive is the scale and concentration of the benefit, and the way it interacts with the Capital Gains Tax (CGT) discount introduced by the Howard government in 1999, which halves the tax payable on assets held for more than 12 months.

The combination is powerful: investors can negatively gear a property for years, deducting losses along the way, then sell it and pay a discounted tax rate on the profit. It's a strategy purpose-built for wealth accumulation - and it works extremely well, if you already have money.

Who Benefits - and Who Pays?

The Australian Tax Office data tells a clear story about who actually uses negative gearing:

The Parliamentary Budget Office has estimated that negative gearing and the CGT discount together cost the federal budget approximately $19 billion per year in foregone tax revenue. The Grattan Institute has put the annual cost of negative gearing alone at around $4–5 billion.

Meanwhile, Australia's housing affordability crisis has reached historic proportions:

• Sydney's median house price exceeded $1.1 million in 2024
• Melbourne's median sits around $900,000
• The average time for a first home buyer to save a deposit in Sydney is now estimated at over 10 years, even on an above-average income
• Australia's home ownership rate has fallen from around 71% in the early 1990s to approximately 66% today, with the sharpest decline among people aged 25–44

Negative gearing doesn't cause all of these problems - supply constraints, planning rules, population growth, and low interest rates over the past decade all play a role. But economists are broadly agreed that tax concessions for investors inflate demand for existing housing stock, pushing prices higher and making it harder for owner-occupiers to compete.

Why Does This Policy Exist?

Negative gearing in its current form is largely a product of political inertia and deliberate design. The CGT discount was introduced by the Howard government as an economic stimulus measure and quickly became entrenched. Successive governments - Labor and Liberal alike - have found it easier to defend the status quo than to face the political consequences of reform.

The reason is straightforward: approximately 2.2 million Australians own negatively geared investment properties. They vote. They are, by definition, financially engaged. And many of them are concentrated in marginal electorates. Property investor lobby groups are well-funded and vocal. The Real Estate Institute of Australia consistently argues that any changes to negative gearing would reduce rental supply and push rents higher - a claim that most independent economists dispute, but which is politically effective.

Labor proposed partial reforms to negative gearing at the 2016 and 2019 elections - limiting the concession to new properties only - and was defeated both times, with the policy used against them effectively in marginal seats with high concentrations of investors and landlords. Since then, both major parties have largely abandoned any serious commitment to reform.

The result is a policy that transfers billions of dollars from the tax base - from hospitals, schools, and infrastructure - to a subset of mostly higher-income Australians, year after year, because the political cost of changing it is higher than the political cost of maintaining it.

What Does the Evidence Say?

In 2016, the Grattan Institute modelled the effects of limiting negative gearing to new housing and reducing the CGT discount from 50% to 25%. Their findings:

• Budget improvement of approximately $5.3 billion per year within a decade
• A modest reduction in property prices - estimated at 1–2% - not the dramatic crash that opponents predicted
• Minimal impact on rental supply, because most negatively geared properties are existing dwellings, not new builds
• A meaningful improvement in housing affordability for first home buyers over time

The Reserve Bank of Australia, the IMF, and multiple independent economic bodies have noted that Australia's tax treatment of investment property is unusually generous by international standards and contributes to speculative behaviour in the housing market.

Why Direct Democracy Changes This Equation

Here's the thing: most Australians who don't own investment properties - which is the majority of the population - would likely vote to reform or abolish negative gearing if given a direct say.

Polling consistently shows majority support for housing affordability reform among younger Australians and renters. A 2023 survey by the Australian Housing and Urban Research Institute found that over 60% of respondents supported restricting negative gearing to new properties.

But in a representative democracy, the preferences of the majority don't always win. They lose to well-organised minority interests, to party discipline, to donor relationships, and to the electoral math of marginal seats. Politicians calculate what's safe, not what's right.

At Direct Democracy, our model is different. Members vote directly on policy positions, and our elected representatives are bound to follow those instructions - not the preferences of donors, lobby groups, or factional powerbrokers. If the evidence says a policy is harmful and the members say they want it changed, it gets changed. It's that simple.

Negative gearing is exactly the kind of policy that a genuine participatory democracy would handle differently. It's expensive, regressive, and entrenched - not because Australians love it, but because the people who benefit from it have disproportionate power in our current system.

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Want a say in how Australia's housing and tax policy actually works? Take our policy quiz at [directdemocracy.com.au](https://directdemocracy.com.au) to see where you stand on the issues that matter, or join the party and start voting directly on the policies that shape your life. This is your country - it's time you had a real vote in how it's run.