Saul Eslake is reported in The Age as saying
Mr Eslake said 92 per cent of investors in rental property purchased established properties so it did nothing to increase the supply of housing or keep rents down.
To be fair, I don’t what else he might have said on that issue, but that statement by itself is probably wrong.
The purchase of established properties occurs in the secondary market. The argument that secondary markets have no economic value is a common fallacy. Secondary markets provide liquidity to primary markets by allowing primary investors to cash in their investments. This establishes a market that generate price signals to guide investment in the primary market. While I’m happy to believe that property markets are likely to be less efficient than, say, stock markets, I’m not convinced that the secondary property market would have no effect on the primary market.
The comments were made in the context of negative gearing. This is a topic that seems to generate extraordinary amounts of commentary. Yet the principle itself is uncontroversial; expenditure incurred in the production of a taxable asset is itself deductible.