Deakin Law Review
Many dwellings in Australia have risen in value substantially over the last few years. This is particularly true of houses in the major capital cities, particularly Melbourne and Sydney. This has led to home ownership becoming increasingly less affordable to ordinary Australians.
Real estate prices are undoubtedly affected by many factors. One of these factors is government tax policy. This paper will show that one of these tax policies, a concession known as `negative gearing' contributed to making real estate unaffordable. It will also examine what policy alternatives might be implemented to maintain the advantages but not the disadvantages of negative gearing.
The first part of this article will illustrate that real estate affordability has indeed become a problem in Australia, particularly in the major capital cities. The second part will describe what negative gearing is, its history, and what its advocates claim its benefits are. The third part will then examine the effects of negative gearing, including what it does to property values. It will also look at whether negative gearing attains the benefits that its advocates claim it does. Furthermore, it will also suggest some policy alternatives to negative gearing. Finally, the fourth part will discuss the best way to amend the current law.
To what extent are real estate prices high in Australia? To the surprise of many, as a ratio of real estate prices to household incomes, Australia now has one of the highest real estate prices in the developed world. It is useful to examine some commonly published figures to examine the extent of the home affordability problem as well as to understand how some of these figures can be misleading.
The recent 2001 census has shown that Australia has a home ownership rate of 66.2%. This figure is quite reasonable when compared to other developed countries, though Australia is far from unique in having a figure close to 70%. The current home ownership figure has remained relatively constant for several decades. Does this mean home ownership is easy to attain in Australia, and that attaining home ownership has not become more difficult in recent years? The short answer is no. This is because the home ownership figure is ‘disguised’ by the ageing of the Australian population. In other words, an increasing proportion of the population is what could be considered elderly. A large proportion of this ‘older population’ own their own homes because houses were very affordable when they entered into the real estate market. Even many of current homeowners that could be considered middle aged rather than old skew these figures, as they also bought real estate when it was substantially cheaper. In conclusion, although home ownership has not markedly changed from what is used to be, it has become increasingly skewed towards the older portion of the population.
When the rate of home ownership amongst younger persons is compared with what it previously was, there is a marked decline in home ownership amongst this age group. For instance, research has indicated that that between 1988 and 1998, the proportion of 25-34 year olds that own a home has declined from 42 to 34%. An even more dramatic drop is evident when examining the home ownership rate between 1975 and 1994 for 30-34 year olds, which dropped from 70% to 55%. Undoubtedly, this is due to many factors, amongst them being decreased job security, and the introduction of the Higher Education Contribution Scheme. However, increased housing prices have undoubtedly also played a role in this outcome.
Furthermore, research in 1999 showed that at the time only 20% of households had the income necessary to purchase a house that was worth $282,000, which was the median house price in Melbourne at the time. Given that the median price of a house in either Melbourne and Sydney is currently substantially more than $282,000, most households in these cities that have yet to buy houses will find it very difficult to get into the housing market.
There are also various ‘housing affordability’ indicators that at first glance indicate that from a historical perspective, housing in Australia is still very affordable. For instance, one of the common measures of housing affordability is the Home Loan Affordability Index published by REIA/AMP Banking Home Loan Affordability Report. This index is calculated as follows:
median weekly family income
average monthly mortgage repayments
According to this index, the higher the figure, the more affordable it is to own a house in Australia. If the figures in the last few years are examined, it would at first glance appear that home affordability is nearly as good as it was 5-6 years ago. However, a closer analysis of this and other similar indices show that they do not accurately reflect home affordability.
The reasons why the relatively high recent figures given by this index are misleading are as follows:
|a)||The denominator of the index is influenced by two things: the size of the average mortgage and current interest rates. So the higher the average mortgage, the lower will be the overall index. However, higher real estate prices will not usually affect the size of the average mortgage dramatically. This is because most mortgages are not new and were taken out at a time that house prices were much lower. In other words, current high property prices are only partially reflected in the denominator of the index|
the denominator of the index is partly influenced by interest rates, the lower
interest rates are, the higher will be the overall
index. However, an inaccuracy
arises because the index takes into account only the nominal, not the real
(after inflation) interest
rate. This disguises the fact that interest rates are
not as low as they currently appear to be in real terms. This has a long term
impact on home affordability.
Assume someone takes out a $100,000 mortgage in 2000. Compare two alternative scenarios. In the first situation, interest rates are 6% and inflation is 3%. In the second, interest rates are 12% but inflation is 10%.
Assume monthly repayments in the first situation are $500 and in the second situation $900 (because of the higher interest rate).
In the year 2010, although the monthly repayments in the first situation are still $500 and in the second situation are still $800 per month, repayments are actually lower in the second situation when measured in year 2000 dollars. In other words, the real value of the repayments in the second situation are much lower than the real value of the repayments of the first situation.
Overall, it is clear that for those entering the market, real estate has become very unaffordable. This is despite the fact that some statistics give the impression to the contrary.
Although some renters are content with renting, there is very strong evidence that the vast majority of them would be owner-occupiers given the economic opportunity to do so.
As mentioned earlier, Australia now has one of the highest real estate prices in the developed world when compared to average incomes. There are undoubtedly many factors that have contributed to this. One of the factors that have contributed to high real estate prices is a tax concession commonly referred to as `negative gearing'. This is not to deny that there have been periods in Australia when real estate prices were affordable, despite the fact that negative gearing was available. However, as the third part of this article illustrates, all other things being constant, negative gearing makes real estate more expensive than it otherwise would be.
Negative gearing allows owners of investment properties to use the loss made by holding a property to offset their other assessable income. For example, if someone that owns an investment property has expenses (such as interest on the loan used to buy the property, repairs and rates) of $25,000, but they only collect rent of $15,000 in a given financial year, then they can use the $10,000 loss made to reduce their other income (such as their salary) by $10,000.
What is the point of owning a property if the expenses of holding the property are greater than the rental income? The answer is that the owner has the expectation that he or she will make a profit due to the property appreciating in value. Although this appreciation in value is subject to capital gains tax, the Australian capital gains tax regime is subject to a number of concessions:
|a)||No capital gains tax has to be paid until a gain is realised. In other words, by holding and not selling an appreciating asset such as residential property, the taxpayer can avoid paying the capital gain.|
|b)||Even where a capital gain is realised, and capital gains tax is paid, the tax is deferred until realisation instead of being payable as the asset rises in value. This means that until realisation the seller is getting an interest free loan for the tax payable.|
|c)||Capital gains in Australia are subject to the benefit of either a 50% discount or indexation.|
The net effect of negative gearing is that it allows someone to come out ahead in economic terms and yet still reduce their tax liability.
Bobby, a taxpayer on the 48.5% tax rate (which includes the Medicare levy), purchases an investment property for $300,000. He makes a net rental loss of $10,000 a year for the five years during which he owns the property. After 5 years he sells the property for $380,000.
Bobby has made an $80,000 capital gain, but a total of $50,000 in losses for the 5 years he owned the property. His overall economic gain as a result is $30,000. Despite the fact that Bobby has made an overall economic gain, the holding of the property has resulted in a reduction of his total tax liability.
For every year he held the property, Bobby has saved $4850 in tax ($10,000 loss multiplied by his tax rate of 48.5%). For the five years, this means he will have saved a total of $24,250 in tax. Upon sale of the property, Bobby will have to pay $19,400 in capital gains tax after utilizing the 50% capital gains tax concession. In net terms, Bobby has saved $4850 in tax. When the timing of losses and gains is considered, the benefits are even greater. Although Bobby had net economic gains every year (his increased wealth was greater than his expenses), he received tax refunds in the first five years, providing him with cash for reinvestment or consumption, and avoided paying the tax on the net gains until after the fifth year.
Australian courts have traditionally allowed taxpayers to negatively gear their investments. For a brief period in 1983, the Victorian Deputy Commissioner of Taxation denied Victorian real estate investors a deduction for interest expenses to the extent that they exceeded rental incomes. Furthermore, any losses that were in excess of rental income could not be carried forward and used to offset future rental income. Because the Deputy Commissioners of other states did not take the same approach, the Federal Commissioner of Taxation ordered the Victorian Deputy to stop denying rental deductions. The Victorian Deputy Commissioner’s denial of the full interest deductions was not based on any legislative change but rather his interpretation of the law at the time.
In 1985, the Federal Government introduced legislative changes that effectively abolished negative gearing for real estate investors. While in force, the legislation was not retrospective and so only affected real estate bought after 17 July 1985. However, due to various pressures, the government subsequently made this `anti-negative gearing' legislation ineffective as from 1 July 1987.
The effect of the repealed legislation was to quarantine any losses made from owning rental properties. In other words, the excess of deductions over rents could not be used to reduce tax on other assessable income, such as salary income. However, the loss made on a rental property could be carried forward to offset future profits made from that rental profit. Furthermore, the loss could be used to reduce taxable gains made from other rental properties bought after the date that the legislation took effect (17 July 1985).
The government’s justification for repealing the anti-negative gearing legislation was as follows:
Restoration of the full deductibility of interest on rental properties will mean uniformity of tax treatment of interest costs for all types of investment. This measure has been made possible only as a result of the Government’s comprehensive tax reform program – in particular, due to the implementation of a capital gains tax and the reduction of the top marginal tax rate to 49 per cent. That reform program has brought a new integrity to the tax system and in so doing has relieved the taxpaying community generally of the burden of the excessive tax benefits that negative gearing offered high income earners prior to July 1985 when the restriction now being lifted were introduced.
Since July 1987, negative gearing has been allowed on all forms of investments.
Advocates of negative gearing claim that its existence is justified because it achieves certain socially desirable outcomes. These outcomes are:
|a)||Negative gearing increases the supply of rental property.|
|b)||Negative gearing decreases the rents charged by landlords.|
The next part of this article examines whether negative gearing achieves these outcomes, as well as its other effects.
By offering a ‘tax benefit’ to property investors, negative gearing makes property ownership more attractive to investors than it otherwise would be. This leads to an increased demand for residential property. Clearly, an increase in demand for residential properties will lead to a rise in real estate prices. It has been argued that this increase in price will continue until the tax savings has been `capitalised' into the price of real estate.
The government, when disallowing negative gearing in 1985, openly admitted that it leads to higher real estate prices:
The government takes the view that the general taxpaying community should not be obliged effectively to subsidise the acquisition of investments by a particular group of taxpayers in this way. Competition for the purchase of residential property between these investors has been reflected in increased prices to the detriment of ordinary homebuyers.
Further evidence that negative gearing leads to higher real estate prices stems from economic modelling of the Australian real estate market. Such modelling has shown that reducing the deduction that property investors can utilise would lead to substantially lower real estate prices. Given the strong evidence that negative gearing leads to higher real estate prices, it is useful to explicitly recognize the advantages and disadvantages of higher real estate prices.
Clearly people who own real estate benefit when it rises in value. They are able to enjoy the benefit by selling the asset and converting the benefit to cash or they can tap the value indirectly by simply borrowing against the increased equity in their real estate. In effect, they are paying a financial institution a fee to bring forward the use of the funds they will realise on sale. Whether they sell the asset or merely borrow against the increased equity, the owners of appreciated real estate are able to utilise the wealth as they would any other income, for personal consumption or for reinvestment in new real estate or other investments.
It should however be noted that these advantages are either diminished to some extent if someone wishes to ‘upgrade’ to an item of real estate that has a greater value than their existing real estate holdings. An example of this is someone that wishes to upgrade from a two bedroom apartment to a three bedroom house. This is because a general rise in the real estate market usually results in a bigger price differential between different classes of real estate.
Higher real estate values will tend to ‘lock out’ some people that have not yet entered the real estate market. The affected people will usually be either younger persons or lower income earners. Others may be able to enter the real estate market notwithstanding the higher prices. However, such persons may have to be satisfied with a property that is inferior to the one they could have bought had prices been cheaper. Alternatively, they might choose to put up with a larger mortgage than would be the case had prices been cheaper. Or they might suffer a combination of these two detrimental alternatives. If they choose to put up with a comparatively larger mortgage, this will leave them with much less spending power for the life of the mortgage. It could be speculated that in practice this has been a contributing factor to low fertility rates, with married couples being increasingly forced to have both members in continuous full time work to pay off high mortgages.
The main effect of higher real estate values is that of a net redistribution in wealth from those that do not own real estate to those who do. Clearly, people that already own real estate tend to be wealthier than those that do not.
Distribution of wealth is very much a controversial area. There are those that believe that there is nothing wrong with the current wealth distribution becoming more skewed than it currently is if everyone becomes wealthier in the process. However, very few would agree that it is appropriate to redistribute money from the poorer to the comparatively wealthier sections of the community. However, this is precisely what higher real estate prices accomplish.
A tax benefit such as negative gearing will by its very nature cause a decrease in government revenue. It is estimated that negative gearing leads to a loss of approximately 2 billion dollars a year in revenue. This figure represents revenue lost due to negative gearing on all types of investments, not only on residential property.
Although this loss in revenue is material, the harm it causes is small compared to the overall harm done by high real estate prices.
As previously noted, negative gearing encourages investment in real estate. Given that there is a limited amount of funds to invest, arguably Australia would be better off as a country if those limited funds were used to invest in genuinely productive industries, such as manufacturing industries.
That negative gearing increases the availability of rental properties is a favourite argument of its advocates. Whether negative gearing increases the availability of negative gearing will be examined in both the short and longer term.
In the short term, the supply of real estate is fixed. Given that there is a fixed amount of real estate, all government policy can do is to affect how this fixed stock of real estate is distributed between owner-occupiers and investors. For instance, if there are one million residential properties in Sydney, then the vast majority of them will have people living in them. Those persons will be either renters or owner-occupiers. Given that there is a fixed stock of housing, for every person that enters into the market as an investor, there will be one less person owning a house as an owner-occupier.
It follows that because negative gearing encourages investors to enter the real estate market, in the short run it results in there being less owner-occupiers. Most of those owner-occupiers that have missed out on owning a home will then be forced to be renters. It should be noted that, as mentioned earlier, there is strong evidence that most renters aspire to be owner-occupiers.
For example, let us again assume that the housing stock in Sydney is approximately one million residential properties. Given that in the short term, the supply of properties is fixed, let us assume that without negative gearing 800,000 of those properties would be owner occupied and 200,000 of them would be rental properties. What negative gearing does is change the balance, to say, making 700,000 of them owner occupied and 300,000 of these rental properties.
Is the long term result any better? There is strong evidence that negative gearing leads to an increase in the supply of housing. This is because negative gearing leads to more residential properties being built. If there are more residential properties around, then all other things being equal there will be more rental properties available. Evidence for this exists at both a theoretical and practical level.
As discussed earlier, negative gearing increases demand for real estate. It is a fundamental principle of economics that an increase in demand will lead to some increase in supply. Economic modelling confirms that a lowering of tax incentives available to real estate investors leads to a decrease in the construction of real estate.
The slowdown of new residential construction for the period when negative gearing was abolished provides some empirical evidence that negative gearing does increase construction of new residential property. It should be noted that there were other factors that contributed to this slowdown, such as the stockmarket boom, which encouraged people to invest in shares rather than real estate. Although it is unclear to what extent negative gearing contributed to the slowdown, it is very likely that it was a contributing factor. In a nutshell, in the long run negative gearing does increase the availability of rental properties by increasing new housing construction.
However, it would appear that this is a second best ‘trickle down’ effect. In other words, the government is giving a tax concession to property investors, and this has an indirect effect on building construction. If the government wants to encourage new housing, a much more direct and efficient way to do so would be to provide a direct grant to persons that purchase newly constructed residential housing. There was previously a $7000 grant given to first home buyers that bought newly constructed housing. This was introduced during March 2001. This grant was on top of the $7000 grant that was and still is available to all first home buyers, which is given irrespective of whether the purchased home is newly constructed or established. There is evidence that this previously available grant of $7,000 had a material impact on construction activity after its introduction.
Such a grant would encourage new housing construction in a much more direct and efficient way than negative gearing currently does. Furthermore, it would not carry with it many of the disadvantages of negative gearing, such as dramatically escalating the price of existing real estate. It would have the additional advantage of making a greater proportion of the new properties owner occupied rather than investor owned.
It is true that such a grant would have an inflationary impact on house prices. This is because it could increase the price that builders charge for new housing, which would have a flow on effect to all housing, both new and established. However, the inflationary impact of such a grant would be substantially lower than that of negative gearing, since a direct grant, unlike negative gearing, only directly affects a small percentage of the housing market.
As stated earlier, advocates of negative gearing argue that negative gearing leads to rents being lower than they would otherwise be. This is the ‘sister argument’ of negative gearing leading to an increase in rental properties.
There are two ways that negative gearing could potentially lead to lower rents:
|a)||By increasing the supply of rental properties;|
|b)||By lowering costs for landlords.|
Whether negative gearing leads to lower rents due to an increase in the supply of rental properties will be discussed from both a short term and long term perspective.
As discussed earlier, in the short term, the residential housing stock is fixed. It was also pointed out that in the short term negative gearing both increases the supply and demand of rental accommodation by nearly identical amounts. Traditional economic analysis states that when an item has an equal increase in both supply and demand there is no increase in price. As a result, it follows that in the short term, the increase in rental accommodation due to negative gearing would not materially affect rents.
The conclusion changes when negative gearing is looked upon from a long term perspective. As discussed earlier, in the long term negative gearing does increase the supply of residential property by more than it increases its demand. Traditional economic analysis states that an increase in supply that exceeds an increase in demand will lead to a lowering of prices. Economic modelling of the Australian real estate market supports this conclusion.
It is useful to examine what happened when negative gearing was abolished for the 2 years between 1985 and 1987. During this period, there were large rental increases in parts of Sydney. However, in the rest of Australia there was no real (after inflation) increase in rents. In many cities there were real decreases in rents. Is what happened in Sydney due to the abolition of negative gearing, or some other factor? It is not possible to answer this question with any certainty.
However, given that there is strong (albeit theoretical) evidence that in the long term negative gearing does lead to rents being lower than they otherwise would be, does this justify negative gearing being maintained? The unequivocal answer is no. If the government wants to encourage an increase in housing construction to keep rents down then the best way to do this is through a government grant given to purchasers of newly constructed housing. As discussed earlier, this will increase the supply of housing while not carrying with it the huge disadvantages of negative gearing.
By providing a tax benefit, negative gearing effectively subsidises the housing costs that some landlords endure. It could be argued that this subsidisation is passed on to tenants in the form of lower rents. If this is true, then it is possible that the abolition of negative gearing would lead to higher costs for landlords that may then be passed on in the form of higher rents.
This argument has been rebutted on the grounds that there is nothing to indicate that landlords are so altruistic as to pass on the lower costs of owning a property to tenants. This argument has strong force because only a portion of investors utilise negative gearing. This is because some investors bought real estate when prices were lower, and so currently have a small interest bill on their investment property. Since only some real estate investors benefit from negative gearing, there is arguably no reason for them to pass on the benefits of negative gearing when others do not.
Furthermore, as pointed out earlier, this subsidy is to some extent capitalised in the price of real estate. To the extent it is capitalized, the tax benefit is no longer passed on to tenants. In other words, since negative gearing leads to higher prices, part of the benefit to landlords is diminished because higher real estate prices mean that it is more expensive to provide rental housing.
However, if it is assumed that landlords do pass on some of the benefits of negative gearing, does this mean that negative gearing should be maintained because some of the cost saving is passed on to tenants? If we are looking for policies that lead to greater rental affordability, then the answer is no. There are more efficient ways to lower costs of renting residential property than by providing a tax concession to some landlords and hoping that this will trickle down to tenants. If the government wishes to directly aid tenants, then the best way to do this is to give some of them rental assistance. Admittedly, there is a possibility that some of this will ‘trickle up’ to landlords by in the form of higher rents. However, such a distribution is much more equitable and well targeted than the negative gearing alternative.
As stated earlier, advocates of negative gearing claim that it leads to lower rents and more rental properties. In the long run at least, it does accomplish these aims. However, it is submitted that it does so in a manner that has several adverse social consequences, such as excluding renters from real estate ownership.
In brief, there appears to be a very strong argument for the abolition of negative gearing. There is a feasible argument that such an abolition should be accompanied with the introduction of a grant available to purchasers of newly constructed real estate. The main losers of such an arrangement would be residential property investors. However, given that residential property investors are currently benefiting at the expense of others being locked out of residential housing, this cannot be considered an unfair outcome.
Once it is accepted that negative gearing should be abolished, the next set of issues that arise deal with how to implement such a policy.
A good way of abolishing negative gearing would be to quarantine the losses made from real estate investments to those investments. In other words, taxpayers could not use a loss from owning a residential property to offset other income, such as salary income. However, they could carry forward any such losses, and if they do end up making a non-capital profit on their real estate, use those losses to reduce this profit. This is similar to the law that was in place when negative gearing was abolished between 1985-1987.
The advantage of this method is that any losses made by the property investor are only deductible if the property investor ends up eventually making a non-capital profit on their investment property. This quarantining would prevent people from making an economic gain and at the same time reducing their tax liability.
However, issues remain regarding the details of implementing such a policy. These issues are whether such provisions should be restricted to residential property, whether they should only apply to purchases made after the hypothetical announcement of such a policy, and whether they should be accompanied by a grant given to purchasers of newly constructed real estate.
Should the abolition of negative gearing extend to all types of investments, including shares, or should it be restricted to residential property? Residential property, unlike other types of investments, has the unusual characteristic of being both an investment and consumption good. As a result, since negative gearing leads investors to bid up the price of residential property, this is to the detriment of potential owner-occupiers.
However, the same outcome is not true of other investments. For instance, the ability to negatively gear shares probably results in higher share values. However, as shares are only an investment but not a consumption good, this does not adversely affect others in such a direct manner.
While it is true that there are arguments regarding the abolition of negative gearing for all investments, these arguments are beyond the scope of this article. What is clear is that the case for abolishing negative gearing on residential real estate is much stronger than it is for other investments. In other words, abolishing negative gearing on real estate needs to be given top priority, whether negative gearing on other investments is abolished or not.
Should negative gearing be disallowed for all residential property owners, or should it only be disallowed for those that have purchased real estate after the hypothetical announcement of its abolition?
It has been argued that as a general rule, changes in the tax law should not seek to protect those persons that relied upon the law before it was changed. This argument is based on the fact that many non-tax changes to the law adversely affect a section of the population, and the government does not aim to compensate such ‘losers’. For instance, if the government chooses to cut funding to the tertiary sector, the students and staff that are involved in the tertiary sector both before and after such funding cuts are not protected from them.
However, it could also be argued that adverse tax changes are unique in two ways. First, it is easy to ‘protect’ those that could potentially suffer from adverse retrospectivity, simply by stating in the changed law that the changes do not apply to those people. This is in contrast to most non-tax changes where it is in practical terms much harder to protect people from changes. Secondly, the general population has an expectation that tax changes of the nature being discussed here will not affect those that made decisions based on the previous law. It is arguably unfair to go against such expectations.
On balance, in the interest of community expectations, an abolition of negative gearing should only apply to those that acquire residential real estate after the announcement of its abolition. This is despite the fact that such an abolition would have less of an effect on revenue loss and real estate prices than a non-retrospective one would.
As previously discussed, negative gearing has some advantages, but causes rises in the value of real estate. Abolishing negative gearing will stop this artificial rise in property prices, but without compensatory policies, would also lead to a loss of its advantages.
On the other hand, abolishing negative gearing while at the same time introducing a grant to purchasers of real estate will maintain its advantages. It would also have a downwards effect on real estate prices, though not to the same extent as if negative gearing was abolished without introducing such a grant.
This raises the issue of whether the abolition of negative gearing should be accompanied by such a grant. Ultimately, this depends on whether it is believed that the money funding such a grant could be better spent elsewhere. For instance, there are other worthy causes other than housing, such as education, health or welfare where the money might be better spent. Alternatively, it could be argued that the money used to fund such a grant may be used to help fund tax-cuts.
Whether the best solution is the pure abolition of negative gearing, or its abolition together with the relevant grant is a difficult decision with no clear answer from a policy perspective. However, either decision would lead to a more equitable result when compared to the current policy.
Although there are very strong arguments that negative gearing on real estate should be abolished, such a policy is unlikely to be implemented in Australia in the near future. Since approximately 66% of Australians do already own their own home, there is little political incentive to prevent wealth being redistributed to them, notwithstanding the unfairness of such an outcome.
However, by educating the public on this issue, and by not allowing various real estate bodies and representatives of real estate investors to mislead the public, the chances of satisfactory law reform in this area will be increased.
[*] Lecturer, School of Law, Deakin University.
 Luci Ellis and Dan Andrews, ‘City Sizes, Housing Costs, and Wealth’ (Research Discussion Paper No 2001-08, Economic Research Department, Reserve Bank of Australia, 2001) 6. Clearly there are cities such as New York or London that have higher real estate prices than even Sydney prices using this measure. However, this measure looks at real estate prices at a country rather than city level.
 Australian Bureau of Statistics Catalogue Number 2015.0.
 John Miron, ‘Methods Used Abroad to Support Access to Homeownership: A Research Survey’ (2001), Canadian Mortgage and Housing Corporation Final Report . Available at: <http://pc218.cus.utoronto.ca/Papers/AccessHomeownership2.pdf> .
 Scott Baum and Maryann Wulff, Housing Aspirations of Australian Households: Positioning Paper (Australian Housing and Urban Research Institute, Queensland and Swinburne-Monash Research Centres, 2001).
 Miron, above n 3, 33.
 Baum and Wulf, above n 4, 23.
 Ibid 26.
 Terry Burke and David Hayward, ‘Melbourne’s Housing Past, Housing Futures’ (2001) 19 Urban Policy and Research 291, 298.
 According to the Real Estate Institute of Australia, in the March 2002 quarter, median house prices for Melbourne and Sydney were $316,500 and $372,000 respectively.
 Australian Property Market Indicators, September 2001 quarter, Real Estate Institute of Australia.
 Ibid 15.
 Baum and Wulf, above n 4, 16-17.
 For instance, it has been argued that one of the reasons for high Australian real estate prices is that Australia has a large proportion of its population concentrated in two cities that are relatively large by international standards. See Ellis and Andrews, above n 1. While this is undoubtedly one of the major reasons for our high prices, the fact remains that this is a factor that is to a large extent out of the government’s control.
 It should be noted that negative gearing has become more desirable since the 50% concession on Capital Gains Tax was introduced in September 1999. This is because negative gearing in substance converts income gains into capital ones.
 Income Tax Assessment Act 1997 (Cth) Part 3-1.
 Income Tax Assessment Act 1997 (Cth) Part 3-1.
 Income Tax Assessment Act 1997 (Cth) Part 3-1. Indexation is a process that results in only above-inflation capital gains being subject to tax. However, indexation only recognizes inflation that has occurred until September 1999.
 Rick Krever, ‘Law Reform and Property Interests: Attacking the Highly Geared Rental Property Loophole’ (1985) 10 Legal Services Bulletin 234.
 Rick Krever, ‘Apportioning Interest Expenses’ (1984) 1 Australian Tax Forum 413.
 The view that the tax law disallowed negative gearing may have had some legitimacy before the introduction of Capital Gains Tax. However, since its introduction, it is clear that negative gearing is legal. This means that disallowing negative gearing under current laws would require legislative change.
 Income Tax Assessment Act 1936 (Cth) Part III, Division 3, Subdivision G.
 Income Tax Assessment Act 1936 (Cth) s. 82KZC, 82KZD.
 Income Tax Assessment Act 1936 (Cth) s. 82KZD(1A).
 Don Hamson and Peter Ziegler, ‘The Implications of Negative Gearing Restrictions and Capital Gains Taxation on Investment’ 3 (1986) Australian Tax Forum 369, 372.
 Commonweath, Parliamentary Debates, House of Representatives, 29 October 1987, 1720 (Duffy, Minister for Trade Negotiations).
 Taxation Institute of Australia, ‘Tax Reform: Let There be no Half Measures’ (1998) 1 Tax Specialist 185, 204.
 Hamson and Ziegler, above n 27, 376-377.
 Commonweath, Parliamentary Debates, House of Representatives, 17 April 1986, 2553 (Hurford, Minister for Immigration and Ethnic Affairs).
 Mark Britten-Jones and Warwick J. McKibbin, Tax policy and Housing Investment in Australia (Research Discussion Paper No 8907, Reserve Bank of Australia, 1989) 21. While the proposal being modelled did not precisely resemble the abolition of negative gearing, both the proposal modelled and the abolition of negative gearing consist of reducing a tax benefit given to property investors.
 This statement assumes that the percentage rise in real estate is uniform across different types of real estate. Although this assumption is rarely 100 % correct, the net effect will usually be that when real estate prices have risen, those wishing to ‘upgrade’ are left out of pocket.
 This lock out effect may extend to existing real estate owners wishing to upgrade their housing.
 For instance, the wealthier part of the community becoming 10% wealthier and the rest only becoming 5% wealthier.
 Policies of the Australian Democrats, ‘Negative Gearing’ <http://www.democrats.org.au/policies/> . It should be noted that this figure is a very broad estimate.
 A small minority of persons might choose to stay at home with their parents. However, for most people the only realistic alternative to buying is renting.
 Walter Nicholson, Microeconomic Theory: Basic Principles and Extension (7th ed, 1998), Chapter 14. An equal shift in the `supply curve' and `demand curves' of an item leads to no change in price.
 Britten-Jones and McKibbin, above n 35, 21.
 Australian Bureau of Statistics Catalogue Number 8750.0. The statistics show that a material decrease in dwelling constructions a shortly after negative gearing was abolished, and a substantial increase in dwelling construction shortly after its reintroduction.
 Ibid. This shows a large increase in Dwelling Unit Commencements in the September 2001 quarter onwards.
 Both of these arguments have been used by advocates of negative gearing to give an ‘altruistic’ motive for its existence.
 Taxation Institute of Australia, above n 31, 204
 Nicholson, above n 41.
 Britten-Jones, above n 35, 21.
 David Hayward and Terry Burke, ‘Justifying the Unjustifiable’ (1988) 7 Australian Society 16.
 Krever, above n 20, 234.
 Ibid. However, it should be pointed out that this argument has less force now compared to when the cited article was written. This is because a much greater percentage of real estate investors now utilise negative gearing than in 1985.
 Douglas McTaggart, Christopher Findlay and Michael Parkin, Microeconomics (3rd ed, 1999) 18.13.
 As noted earlier, it might also be necessary to increase rent assistance.
 Krever, above n 21, 433-435.
 Krever, above n 20, 235.