Home-owners are far more tax-advantaged than investors and Labor’s plan to limit negative gearing would do little to help first-home buyers, says a new analysis that questions Labor’s policy costings.

A comparison of returns for owner-occupiers and investors from buying a typical house reveals the capital gains tax exemption for owner-occupiers far exceeds the value of negative gearing benefits.

“Current tax policy heavily favours owner-occupiers over investors, although that’s not the common view,” says Graham Young, director of the Australian Institute for Progress, which carried out the analysis.

A 100% geared investment in a $490,800 house purchased in 2011 that was sold for $631,000 five years later would have returned 27% for owner-occupiers and 16% for investors — and 14% and 9%, respectively, if they put down a 20% deposit, Young says.

The higher returns for owner-occupiers implied home-buyers are not being outbid by investors using negative gearing (as claimed by Federal Labor leader Bill Shorten).
Rather, the evidence suggests that the factor that makes affordability an issue in this country is the relative ease with which investors (who generally own their own home) can use that equity as a deposit, compared to the first-home buyer who has to save a deposit from scratch.

As part of a suite of reforms in the budget to make homes more affordable, the Federal Government has created first-home saver accounts, to allow buyers to put up to $30,000 of concessionally-taxed income towards their first home.

“Labor’s proposed negative gearing policy heavily penalizes investors but it is likely they would still be in the housing market, because based on the last five years, a geared investment in housing would still beat an investment in super by up to 71% after tax,” the AIP study finds.

“Super has been a relatively poor investment in the recent past, and investing their savings in their own home is the best investment an average Australia could have made, by a factor of almost 2.95 times. The median super fund return was 6.8% over five years.