sixty minutes, page-83

There is no doubt that the Australian Housing Market is clearly different from the US for the following reason:

1. Negative Gearing and CGT and the effect that has had on property values and investment.

The increase in Australian house prices has been phenomenal:

1. In the last 20 years house prices in Australia have more than quadrupled

2. In real terms after taking inflation into account, houses are now 80% more expensive than 10 years ago

3. In some capital cities, such as Perth and Brisbane, the increase has been even more dramatic.

The majority of overseas countries – including the USA, the UK, and Canada - do not allow negative gearing. The United States, for example, allows negative gearing losses from investment to be claimed against income from that (and other investments), but not against salary income.


A key stimulus for the most recent housing boom and consequential crisis in housing affordability was the 1999 decision by the then Liberal/National Government to implement a 50% concession on Capital Gains Tax for properties held longer than one year. The appeal of negative gearing was greatly enhanced by this decision. This resulted in a change to tax law in 2000.

The doubling in Australia's capital cities house prices has occurred since that decision. The investment surge was fuelled by borrowings, largely funded by increased bank borrowings offshore, in turn helping raise Australia's foreign liabilities to record heights.

This CGT exemption, combined with negative gearing was a tremendous boost for investors who, logically, ‘priced in’ the value of this tax concession, thereby explaining in part, the dramatic upward shift in house prices.

Naturally this has all come at a cost to "first time buyers" and "single dwelling owners" with House Affordability at it's lowest levels.

It is this section of the market which will be the decider for a housing bubble burst.

With unemployment expected to increase (due to the impact of a global recession) this will have an impact on this market both in terms of selling of existing assets and also new investment market buyers. Naturally too this will be coupled with first time buyers and normal residential buyers.

Then there is of course whether investment properties will be liquidated for whatever reason eg to make up for income lost from stock prices, cover losses in other areas etc.

The question is how much the recession will impact on the "investment proerpty market"?