Lately, the topic of negative gearing has been making headlines again after news broke that the Albanese government asked Treasury to explore different ways to possibly change the policy. However, Prime Minister Anthony Albanese has been careful with his words, saying there are no plans to change negative gearing before the next election. Meanwhile, some within the Labor Party have confirmed that the government is looking at its options, but they might still decide not to make any changes.

As the debate around negative gearing heats up, especially among politicians and on social media, it raises an interesting question: who are the people in Australia who negatively gear their properties?

A Quick Note on Interest Rates

Before diving into the data from the Australian Taxation Office (ATO), it’s important to remember that the numbers come from the 2021-22 financial year – a time when interest rates were at record lows. At that point, variable interest rates were around 3.2%, and fixed rates were as low as 2.5%. Since then, interest rates have jumped significantly, with variable rates now around 6.7% and fixed rates at 5.5%. So, the number of negatively geared investors is expected to be even higher this year, which will also increase the cost to the federal budget.

Who Are Negative Gearers?

The group most likely to negatively gear their properties are high-income earners. For people with taxable incomes between $500,000 and $1 million, 19.5% negatively gear their property investments, and 41.8% own investment properties. On the other hand, for those earning a typical full-time wage of $88,900, only 7.3% are negatively geared property investors, and 15.8% own investment properties overall. For people earning the median personal income of $67,600, the numbers are even lower: 5.6% are negatively geared, and 12.6% invest in property.

Demographics: Age and Gender

When it comes to age and gender, men aged 40 to 44 have the highest number of negatively geared properties, with 53.5% of them reporting a loss on their property investments. For women, the largest group of negatively geared investors is those aged 35 to 39, with 51.6% in this demographic negatively gearing their properties.

What About Baby Boomers?

For a long time, Baby Boomers have been seen as a roadblock to changing property tax concessions like negative gearing. But negative gearing works best for people who are still working and can offset their property losses against their income. By 2024, the median Baby Boomer will be 69 years old and likely retired, so it’s not as beneficial for them anymore. Only 24.3% of Baby Boomers negatively gear their properties, compared to 48.1% of younger generations.

How Much Does Negative Gearing Cost?

In June, the Parliamentary Budget Office estimated that negative gearing cost the government $2.1 billion in lost revenue during the 2021-22 financial year. That’s actually down from $4 billion in 2017-18. However, with interest rates staying higher, the cost is expected to rise again – to $7.7 billion by 2025-26, and by 2034-35, it could reach $14.5 billion a year.

The Bigger Picture

In recent years, housing has become a bigger issue for policymakers, and it might even influence election outcomes. There’s ongoing debate about how negative gearing impacts housing demand, property prices, and homeownership rates. What’s clear, though, is that fewer people are owning homes, and more Australians are renting, even into their retirement years. Between 2001 and 2021, the percentage of people over55 renting went up from 17.7% to 20.6%, and for those aged 35 to 54, it jumped from 26.8% to 33.7%.

If politicians want to see more people owning homes and enjoying the stability that comes with it, something will need to change. Sticking to the same policies that have led to worsening outcomes could be seen as, to quote a wise saying, “the definition of insanity”. Whether this change will involve reforming negative gearing remains to be seen, but it’s clear that doing nothing is no longer an easy option.