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Will house prices ‘collapse’ if negative gearing is changed?

Gavin Wood writes in The Conversation (26.2.16) that the federal government’s criticism of Labor’s negative gearing proposals misrepresents the complexities of Australia’s housing market.

‘There is much confusion about the effects of Labor’s tax proposals with respect to investors in rental housing. They propose to grandfather existing arrangements. But investors in the future can only negatively gear newly constructed housing, while the policy recommends the capital gains discount fall from 50% to 25%.

‘Claims by Prime Minister Malcolm Turnbull that house prices will collapse appear to be contradicted by his assistant treasurer Kelly O’Dwyer who claims that housing costs will soar. These puzzling assertions arise due to a failure to distinguish between the market in rental housing, where housing is leased, and the market in which investors and owner occupiers buy and sell housing. Critically these two markets are interrelated.’

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