I'm sure to put the cat amongst the pigeons with this post, but interested to see the response. Towit: Up until recently I have always been an advocate of negative gearing in a residential property investment sense, even though I have never taken advantage of it, given I prefer to, and have had the luxury to positive gear. After all, property purchased for investment, for all intent and purpose, should benefit from tax deductions, ie-negative gearing. And I still believe NG is valid for commercial and industrial property investment. That said, of late, I'm not so sure that residential property should qualify. In fact, I no longer believe that NG is appropriate in the housing sector. Here's why. First, unlike any other investments, residential property serves a necessary human function. It puts a roof over the heads of those unable to purchase a home - mainly the young, the old and the impoverished. A special purpose, if you will. Second, rental income, in and of itself, provides an income to the investor in order to defray holding costs (partly, when maximum leverage is employed, and fully when positively geared). Third, we come to the element of time, and the main income/profit driver of capital appreciation. So even without the benefit of NG the investor derives revenue from both rent and capital appreciation over time. Not a bad deal.
There is no doubt that NG plays a part in driving up the investment return of residential property at the expense of the taxpayer. But NG is a negligible offset when compared to the benefits gained by rents, time and capital appreciation. The rub here is that it is becoming increasingly difficult for renters to afford the elevated rent, due in part to NG.
My questions posed here are; are rents and capital appreciation not enough for the residential property investor? In light of the fact that residential housing serves a special purpose above and beyond any other investment, is it not time to reconsider the efficacy of NG? Do we in fact need it, other than greed? I think not!
Let the feathers fly
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