Tax breaks for investors using houses as short-stay accommodation could be costing Australian taxpayers hundreds of millions of dollars per year, according to a new report by Everybody’s Home.
The short-stay subsidy report estimates that the budget could be losing between $111m and $556m in forgone revenue this financial year through negative gearing deductions claimed on short-stay rental properties.
Last week, the government announced its scheme to get first home buyers into the market, but economists and renters say if the country wants to see a serious increase in property ownership, the government should change tax concessions that fuel property investing.
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Across Australia, 167,955 entire homes are estimated to be operating as short-stay accommodation instead of long-term rentals, and owners can still claim negative gearing and the capital gains tax (CGT) discount.
While there is no official breakdown of how many short-stay properties are negatively geared, the Australian Taxation Office (ATO) has reported that about 50% of all property investors are negatively geared in any given year.
The report says that even by conservative estimates, where if just 10% of short-stay rentals were negatively geared, the annual cost to the budget could exceed $111m. If half were negatively geared, the cost could rise to $556m.
Maiy Azize, a spokesperson for Everybody’s Home, said the Australian taxpayer was footing the bill for property investors to get tax write-offs from holiday homes.
“All while families are being priced out of their communities because they can’t find affordable rentals,” Azize said.
“Renters across the country are being squeezed by soaring rents and a shrinking number of affordable homes – and in many parts of the country, short-stay accommodation is only making it worse.
“Generous tax breaks for investors, including for short-stay accommodation, are driving wealth inequality and pushing up house prices for everyone else.”
Since peaking at 71% in 1966, home ownership in Australia has declined from 70% in 1981 to 67% in 2021, the Australian Institute of Health and Welfare has found.
This has been largely driven by rising prices. The median house price of $178,000 at the turn of the century was 6.5 times the average income of $27,600, and soared to $933,000 last year, 12.8 times the average adult Australian’s annual income of about $73,000.
Nadia, 40, lives with her partner in Mosman. Together they have a combined income of more than $220,000 and pay $750 a week in rent. She says they have given up on the idea of ever owning property.
“We work full-time, always have, and we are able to put money aside. But we are still not in that position,” she said.
Before getting her current job she ran her own business, and did not make enough money to save. She says she knows of whole apartment blocks in surrounding suburbs that are entirely short-term stays.
“It has a trickle-down effect, where rental prices increase for long-term rentals,” she said.
She said it would be the “bare minimum” to take negative gearing out of short-term stays.
The Everybody’s Home Priced Out series has shown that low and middle-income earners in almost every part of the country are required to spend well above 30%, and in many cases more than 50%, of their income to afford asking rents.
Saul Eslake, a leading economist, said that while ending negative gearing on short-term stays would do little to help save money in the budget, it could bring rents down.
He said owners who negatively gear their short-term stays would likely move their properties into the rental market, which would mean they would still claim the concession.
“So the government isn’t going to make any more money,” he said. “But it will increase the supply of rental housing.
“The main benefit of what they’re proposing, if a government were to take it up, would be to give property owners an incentive to convert them back.”
Eslake said around one in five taxpayers is a landlord, making Australia an outlier internationally, where many other developed nations have their rental stock owned by governments, charities or other entities.
“If the government wanted to bring house prices down, they would have to phase out negative gearing and change the capital gains concessions,” he said. “This would also put money back in the taxpayer pocket.
“The only way you would raise additional revenue is if you restricted negative gearing altogether.”
