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The Taxation of Australian Landlords: Would the British Tax Treatment of Rental Investments Increase Tax Burdens if Introduced in Australia?

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  • Gavin A. Wood

    (Murdoch Business School, Murdoch University, Murdoch, Western Australia 6150, G.Wood@murdoch.edu.au)

  • Peter A. Kemp

    (Social Policy Research Unit, University of York, Heslington, York, Y010 5DD, UK, pakl@york.ac.uk)

Abstract

The tax treatment of housing can have important implications for the relative attractiveness of investment in housing. The tax regime for private landlords in Britain appears to be less favourable than in many other advanced welfare states, including Australia, where negative gearing is commonly cited as a tax preference encouraging investment in rental housing. If private landlords in Britain are tax disadvantaged compared with their Australian counterparts, tax burdens and rents will increase if British central government tax arrangements replace current provisions. This proposition is tested using micro data from a survey of private landlords in Australia to model the impact of the two tax regimes on their user cost of capital. It is found that, at the inflation rates prevailing in the early 1990s, tax burdens are marginally lower under Australian as compared with British tax arrangements. However, at lower rates of inflation, this conclusion is reversed; this is particularly the case for landlords with relatively short holding periods who invest in low-income rental housing.

Suggested Citation

  • Gavin A. Wood & Peter A. Kemp, 2003. "The Taxation of Australian Landlords: Would the British Tax Treatment of Rental Investments Increase Tax Burdens if Introduced in Australia?," Urban Studies, Urban Studies Journal Limited, vol. 40(4), pages 747-765, April.
    • Handle: RePEc:sae:urbstu:v:40:y:2003:i:4:p:747-765
    DOI: 10.1080/0042098032000065281
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    References listed on IDEAS

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    1. A. D. H. Crook & John Hughes & Peter A. Kemp, 1998. "Housing investment trusts and the returns from residential lettings," Journal of Property Research, Taylor & Francis Journals, vol. 15(3), pages 229-248, January.
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    5. Gavin A. Wood, 1990. "Housing Finance and Subsidy Systems in Australia," Urban Studies, Urban Studies Journal Limited, vol. 27(6), pages 847-876, December.
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    7. Gavin A. Wood, 1990. "The Tax Treatment of Housing: Economic Issues and Reform Measures," Urban Studies, Urban Studies Journal Limited, vol. 27(6), pages 809-830, December.
    8. repec:bla:ecorec:v:54:y:1978:i:145:p:127-39 is not listed on IDEAS
    9. David C. Ling, 1992. "Real Estate Values, Federal Income Taxation, and the Importance of Local Market Conditions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 125-139, March.
    10. Wood, Gavin A, 1996. "The Contribution of Selling Costs and Local and State Government Taxes to Home Buyers' User Cost-of-Capital," Australian Economic Papers, Wiley Blackwell, vol. 35(66), pages 60-73, June.
    11. Crocker H. Liu & Terry V. Grissom & David J. Hartzell, 1990. "The Impact of Market Imperfections on Real Estate Returns and Optimal Investor Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 453-478, December.
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    Cited by:

    1. Andrew Coleman & Grant Scobie, 2009. "A Simple Model of Housing Rental and Ownership with Policy Simulations," Working Papers 09_08, Motu Economic and Public Policy Research.
    2. Gavin A. Wood & Rachel Ong, 2013. "When and Why Do Landlords Retain Property Investments?," Urban Studies, Urban Studies Journal Limited, vol. 50(16), pages 3243-3261, December.
    3. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
    4. Gavin Wood & Sharon Parkinson & Beverley Searle & Susan J. Smith, 2013. "Motivations for Equity Borrowing: A Welfare-switching Effect," Urban Studies, Urban Studies Journal Limited, vol. 50(12), pages 2588-2607, September.

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