As it turns out, negative gearing is not the reason why Australian home prices are skyrocketing

It may seem that industry watchers who believe negative gearing is behind the escalating home prices in Australia are actually barking up the wrong tree.

According to a study by the Australian Housing and Urban Research Institute (AHURI) there is little correlation between negative gearing and rising property prices.

The report compared Australia and Germany's negative gearing policies and found that while both countries exempt owner-occupied housing from capital gains and provide for negative gearing, Oz house prices have continued to rise while Germany’s remain relatively stable due to a large private rental sector.

In a statement, Property Council chief executive Ken Morrison said this report adds to the growing number of credible research dispelling the myths about negative gearing.

“AHURI’s peer-reviewed report compares Australia and Germany, which has the same negative gearing tax settings. However, Germany’s housing supply is more closely matched with its lower population growth," Morrison said.

Also Read: The cure to Australia's severe housing unaffordability: get rid of tax breaks

Morrison explained that this comparison focuses on the need for more supply-side policy levers in Australia to ensure demands are met.

"The AHURI report underscores the requirement for more variety in Australia’s rental stock, including the role institutional investment can play. This matches the Property Council’s calls for the government to support the emergence of a build-to-rent sector in Australia," he added.

The AHURI report also stresses the vital role of the community housing sector in supporting social and affordable housing. It also suggested that policy settings and future strategy for rental markets should take into consideration not only tax settings but also the availability of finance, population and other demand levers

This report opposes an earlier report presented to the Reserve Bank of Australia, which claims that abolishing negative gearing would result in lower house prices and higher ownership rates.

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