Abstract
To date, no empirical study has examined the impact of negative gearing and other factors on residential investors' decisions using quantitative analysis. We applied a structural vector autoregression framework to trace the response of residential investors in Greater Sydney to shocks in its key drivers over the period 1991-2018. We discovered a residential investors' profile in which negative gearing is being used to cushion any net rental loss during periods of low yield while expecting capital growth over their holding period. This supports the hypotheses of the study which posit that capital gains and negative gearing have a positive and negative relationship, respectively, with the number of residential investors. Additionally, a negative relationship between mortgage lending rate and number of investors is found, indicating a rising lending rate will increase expenses and contribute to low yield. We also found population growth and increased housing supply could increase the number of residential investors. These results could be used by tax and housing policy makers to recalibrate tax laws relating to negative gearing, especially for residential investment. Residential investors could potentially use this information for more informed decision making, particularly during periods of low yields.
| Original language | English |
|---|---|
| Pages (from-to) | 21-48 |
| Number of pages | 28 |
| Journal | Journal of Housing and the Built Environment |
| Volume | 39 |
| Issue number | 1 |
| Publication status | Published - Mar 2024 |
Bibliographical note
Publisher Copyright:© The Author(s) 2023.