Removing negative gearing would have little effect on rents

Further, it is unclear why the government should promote investment into the residential property market. Although assertions can be bandied around that benefits outweigh costs, two hurdles should be met: that intervention is necessary and that the proposed intervention is the most efficient and effective relative to alternatives. Given that surging rents in recent years have caused increasing financial stress among many renters, policymakers may believe that intervention is necessary as a social and economic objective to assist those in need. It is farfetched, however, to assume negative gearing is the best policy available, especially with the obvious alternatives of the National Rental Affordability Scheme (NRAS) and the Commonwealth Rent Assistance (CRA) program.

Much of what is written by supporters of negative gearing is in terms of assisting renters for the social good rather than admitting that it is simply an unjustified handout to property speculators. Anyone who understands the basic principles of the marketplace sees that investment is made solely for the investors' self-interest in profiteering. This, of course, does not prevent investors from trumpeting the wonder and selflessness of their actions, whether they believe it or not (witness Goldman Sachs CEO Lloyd Blankfein claiming to carry out god's work). The conservative individualism and self-interest that guides participants in the marketplace are strangely absent when negative gearing is discussed.

Given that private investment is done solely on the basis of profit, a curious contradiction arises: if eliminating negative gearing did cause rents to rise, as is commonly claimed, investors would certainly not oppose this outcome. This contradiction can be explained by realising that the housing lobby and investors recognise (never publicly) that negative gearing has little, if any, effect upon market rents. Removal of it would simply hurt their bottom line, but not that of renters. If rents did rise, the well-targeted CRA can be easily boosted to compensate accordingly.

Those who do support negative gearing, unsurprisingly, have conflicts of interest. It would help the case for negative gearing if arguments were made by those who could legitimately claim to be objective, that is, not have a stake in the policy they support. Whether it be the housing lobby or so-called "mum and dad" investors, it is difficult to accept that conflicted individuals and organizations can legitimately claim they know what is best for others when their self-interest dictates their public stance (imagine tobacco executives claiming to know what is in the best interests of public health). It is difficult to find an objective and conflict-free commentator willing to consider the necessary theoretical and empirical evidence to show that negative gearing is an efficient and effective policy.