Impact of Labor’s 1985 negative gearing changes (that they had to reverse in 1987)

Rents “hit the roof” when Labor last changed negative gearing. The Sydney Morning Herald on 14 March 1987 observed:

“Investors [are] leaving the residential rental investment market because of a decreasing return on investment. The falling return is partly due to the introduction of a capital gains tax and removal of negative gearing.” (Source: “Sydney Rents Hit the Roof”, Sydney Morning Herald, 14 March 1987)

Even the Prime Minister at the time was forced to admit the link between negative gearing changes and rents. The Sydney Morning Herald ran a front page article titled “PM: Rents too high – Negative gearing ban faces review”:

“The Prime Minister promised yesterday a review of the crackdown on taxation concessions for investment in housing, seen by many as a principal reason for Sydney's rental crisis. Mr Hawke said he was willing to receive submissions on how the 1985 decision to abolish negative gearing could be modified without reducing its effectiveness as an anti-tax avoidance measure. ‘I acknowledge the particular problem in Sydney in relation to the rental market,’ he added.” (Source: “PM: Rents too high, Mike Steketee And Steve Burrell”, Sydney Morning Herald, 4 July 1987)

When Keating reversed his own decision to abolish negative gearing he said it would boost residential rental property:

“Tonight's decision restores the symmetry between investment in property and other assets such as shares or farms. It will enhance the attractiveness of investment in both commercial and residential rental property and have a beneficial effect on the supply of residential accommodation in particular.” (Source: Paul Keating as Treasurer, 1987 Budget Speech, House of Representatives, 15 September 1987)