I have an article in the New Zealand Herald, about negative gearing. I think it’s something our government should be working on, urgently.
Negative gearing is the practice of investing in property, expecting that the income earned by the property won’t be enough to cover the costs of owning and managing it.
In other words, the “investor” expects to make a loss. In concrete terms, it’s like buying a rental property and renting it out for $30,000 a year, but expecting to pay $35,000 a year for interest and rates and other expenses.
The problem with negative gearing is that at present, investors expect to make their money in the long term out of untaxed capital gains. They wear the short-term, tax-subsidised losses on their rental properties, in the expectation that eventually they will sell the property and the money they make will far outweigh any losses they’ve accumulated along the way.