Replace Negative Gearing with Long-Term Rent Bonuses

It isn’t a new idea to remove negative gearing, an idea that promotes losses on property, subsidised by the government. 

We propose removing negative gearing over the next 5 years…

… And replace it with a tax free bonus of 5% of the rent received for all 5 year residential rent contracts.

Payable at the end of 5 years if the tenant stays for the whole 5 years.

The 5 year contracts can have any stipulations, but the government will provide a sample that is recommended. It will be very similar to the existing standard contract, but with extra provisions that suit long-term tenants, such as allowing non-structural improvements to the property, longer notices to vacate, and the ability to add solar power.

With long leases, any damage that may be debatable, such as damage by pets, picture hooks and unkempt gardens becomes relatively less expensive to remedy. Potentially tenants may be able to describe improvements before making them, which the owner can reject by application to an authority. The described improvements would form part of the condition report, with the expectation that they have proceeded as described.

This should result in increased renter contentment, and lower rent for 5 year leases.

The removal of negative gearing would see an increase in properties for sale, as landlords would then be paying for all of the operating losses instead of 50%.

A buyer’s market will see property values drop. The lack of negative gearing will cause rental returns to increase relative to property price.

The overall effect should be:

  • Lower house prices
  • More home ownership
  • Rent remaining the same for 1 year leases
  • Rent decreasing for 5 year leases
  • More investment in non-property areas
  • Less investment in rental properties

None of the above will be major enough to affect the economy.

But Why?

  1. People without investment properties tend to believe that negative gearing unfairly benefits the rich
  2. One-year residential leases create uncertainties for renters
  3. Frequent moving of home is inefficient and destabilising