A national land tax is comming!

[Lil Skater]

DO you mind providing an example?

Well there's no national land tax available now is there, so that's not possible.

What i'm saying is, IF this policy is introduced it will scare off investors because of your reasoning, they cannot afford it, or they weren't prepared.

BUT the smarter ones, or better prepared will look at it optimisticly and say hey, it's going to cost us more but look, there are more properties now available in good CG areas that are within price range because no one wants to pay the extra tax, also there are more tenants because they don't want to pay extra tax on their house, which in turn increases rents.

So for the well prepared investor, this *COULD* be a great opportunity to increase their portfolio and rents providing them with greater in 2012 (as an example) than they were aiming for.

 

[skater]

Uh, how do you know how much this national land tax, IF it comes in, is going to be? If you don't know how much it's going to be, how do you know how much buffer you'll need?

Precisely!

I remember quite a few years ago having to pay an annual land tax bill of $25 for something that I held in Tasmania. A similar property elsewhere I would have been paying $1000's in the same tax.

If such a tax was to ever be implemented it would not be a very large tax as it would have to be low enough that everyone could afford to pay it. Imagine the backlash if all the pensioners lost their homes because they could not pay this tax.

 

[Ausprop]

Imagine the backlash if all the pensioners lost their homes because they could not pay this tax.

exactly. and just like every other tax, pensioners and low income earners will be compensated or more than. Thus it will be just another robin hood policy.

I saw Swan trying to argue that compensating low income earners for carbon trading wasn't a robin hood policy as well. was very comical. if low income earners arent paying it, then who is left?

whilst talkign about Labor policy, weren't mortgage exit penalties going to be abolished? oh that's right, strong banking sector is crucial, stuff everyone else. unless you are a low income earner... you can have a tax rebate or a cheque now if you don't have enough cash to tide you over to June 30

as for national land tax, sounds feasible. renters get a free ride and resi property investors are too scared to adjust theor rents upwards, sounds like a nice tax deduction. You too can share in the $25bn tax bonanza!

 

[Humphrey]

BUT the smarter ones, or better prepared will look at it optimisticly and say hey, it's going to cost us more but look, there are more properties now available in good CG areas that are within price range because no one wants to pay the extra tax, also there are more tenants because they don't want to pay extra tax on their house, which in turn increases rents.

If such a tax was to ever be implemented it would not be a very large tax as it would have to be low enough that everyone could afford to pay it.

Ideas like these are all speculation about what may or may not happen. There's probably not much point in debating a future which no-one can predict.

I think that Daniel got hit a bit hard for posting this. I agree that you can get sucked into media-driven panic scenarios but at the same time you need to still have half an eye on what is coming down the track.

I think that many of us can agree that the follow-on from the Henry review has the potential to affect our investment strategies and is worthy of monitoring. And I think that many of us can also agree that it's often easy to find some piece of "news" to justify delaying our investment decisions.


EC

 

[hobo-jo]

BUT the smarter ones, or better prepared will look at it optimisticly and say hey, it's going to cost us more but look, there are more properties now available in good CG areas that are within price range because no one wants to pay the extra tax, also there are more tenants because they don't want to pay extra tax on their house, which in turn increases rents.

I'm not sure I understand how less investors in the market = higher rent. It just seems to be what investors scream so they can ignore reality. Historically has reduced investor demand seen an increase in rents in Australia or elsewhere? Can anyone provide solid evidence (e.g. stats, not personal examples)?


10 people, 10 houses
3 people have mortgages, 3 people free hold, 4 are tenanted (owned by investors)
Taxes go up, the 3 with mortgages sell up, so now 7 tenanted, 3 freehold owners, still 10 houses

Why does the rent go up? Yes there are more tenants, but there is the same number of houses. I guess you could argue that the 3 that sold all might want to rent the nicest house on the market pushing up the rent on that one, but that then reduces demand for the others...

 

[Ausprop]

perhaps next year 2 new people appear. in the previous year, a speculator was going to build 2 new houses but only built 1 instead. plus another guy is gettign older and decides to buy 1 of the 10 for a holiday home. we now have problem.

 

[hobo-jo]

perhaps next year 2 new people appear. in the previous year, a speculator was going to build 2 new houses but only built 1 instead. plus another guy is gettign older and decides to buy 1 of the 10 for a holiday home. we now have problem.

This is outside of the scope of the example and what people here are suggesting. What I am reading above is that less investors in the market somehow = more rent. Market pressures (supply/demand, etc) will always exist, but I struggle to understand how users here can claim that less people wanting to buy due to increased taxes will somehow = higher rents.

If PI becomes unappealing then less investors will buy the property which in turn will push up the rents.

I love people like Daniel who are so easily scared. More renters means higher rents for me.

More tenants, higher rents= MORE MONEY!

If they do, I'll deal with it. If it scares investors off, then rents go up. It's all good.

I see no mention of other factors except more tenants = more rent with no plausible explanation.

 

[Lil Skater]

10 people, 10 houses
3 people have mortgages, 3 people free hold, 4 are tenanted (owned by investors)
Taxes go up, the 3 with mortgages sell up, so now 7 tenanted, 3 freehold owners, still 10 houses

Why does the rent go up? Yes there are more tenants, but there is the same number of houses. I guess you could argue that the 3 that sold all might want to rent the nicest house on the market pushing up the rent on that one, but that then reduces demand for the others...

More demand means that investors can push up rents without being "greedy".

 

[hobo-jo]

More demand means that investors can push up rents without being "greedy".

It's not more demand. It's the same number of people looking to move into the same number of houses.

 

[Lil Skater]

It's not more demand. It's the same number of people looking to move into the same number of houses.

No really, people get older, thus mov out of home, increasing the amount of people looking for a home, having kids increases population.

Yes deaths also cause vacancies etc.

 

[skater]

You are wrong. The population in Australia is increasing all the time, so you don't have the same amount of people seeking housing. You may start out having 10 houses and 10 people, but you will soon have 10 houses and 11 people creating an undersupply.

 

[hobo-jo]

No really, people get older, thus mov out of home, increasing the amount of people looking for a home, having kids increases population.

Yes deaths also cause vacancies etc.

Once again, you are bringing other external factors into the equation. I'm not saying demand won't increase for other reasons, demand could also reduce depending on other factors. What I'm saying is that less investors in the market does not = higher rents. Increase in taxes and reducing interest in property does not = higher rents.

You are wrong. The population in Australia is increasing all the time, so you don't have the same amount of people seeking housing. You may start out having 10 houses and 10 people, but you will soon have 10 houses and 11 people creating an undersupply.

Wrong how? I am simply saying that these taxes will not equal higher rents. If they are going to then please list a simple scenario in which this would happen without any other factors....

Looks like BlackSpider can see where I'm coming from.

 

[BlackSpider]

No really, people get older, thus mov out of home, increasing the amount of people looking for a home, having kids increases population.

Yes deaths also cause vacancies etc.

This will happen regardless of whether the new tax comes in or not ?

 

[Lil Skater]

This will happen regardless of whether the new tax comes in or not ?

Yes it will.

Point i was trying to make, population will always increase, AND along with a new tax more people will be less inclined to buy, forcing more people into rental homes.

Not sure if this makes much sense..

 

[weg]

This may or may not happen, but if it did, as the majority of investors don't have many investment properties, or properties outside of their state, the outcry would be from a very small percentage group.

I think also, because these interstate properities make up only a small percentage of rental properties overall, rents increasing due to this factor only would be insignificant if at all.

And that is assuming that investors would sell these properties. Some may but I think most wouldn't.

I know quite a few investors amongst my family and friends and almost all that have multiple properties have them in SA and manage their land tax by being 'creative'.

 

[HiEquity]

Increasing land taxes will result in less people renting and more people living in their own house. Less investor demand means more investors than previously will be selling their houses to OOs who don't have to pay this tax.

It will result in lower house prices (all other things being equal which they never are) as investors put their houses on the market and there is less demand from other investors to buy but the same level of OO demand. More supply, less demand = lower prices.

Some of the old renters will be forced into the OO market as a result so will just be swapping a rental for a PPOR. The significant contingent who still won't be able to afford to buy for whatever reason will still be forced to compete for fewer rental properties. Higher demand, lower supply = higher rents, to the same extent that prices drop (the previous paragraph) because the new equilibrium will factor in this new tax and just set a different point in the yield equation.

This is more the characteristic of the change process rather than a straight function of the housing market of course. The complicating factor is that land taxes put pressure on the owners of vacant land (or under developed land) to develop it as the costs of ownership rise so the need to earn an income from it rises also. This may well increase the total supply of properties to the market, which would also depress prices until a new equilibrium is reached when it wasn't worth doing anymore. This may also act to depress rents for the same reason = more supply.

Indeed one of the main attractions of land tax to a govt is its ability to encourage property development while lowering land prices - generally both those factors are seen as positives although the second one less so due to the reverse wealth effect for owners of property (ie most people in Oz) who see the value of their house reduce. This also has to be weighed against the perception of sovereign risk in the property market, which would be a distinct negative for encouraging investment!

It all depends on the amount of the new land tax of course... and if it ever happens! From an economist's point of view though (ie Mr Henry's), increasing land taxes is one of the most attractive means of solving the affordability "crisis" while increasing govt revenue and potentially stimulating construction. The temptation to increase them is strong and only tempered by the "sovereign risk" argument... so ignore at your peril.

Just one of the many risks out there in this business...

 

[Peter Parker]

The government has already voted to ignore several of the likely recommendations by the Henry review, before they've even been tabled. So, I am not too worried at this point.

Knowing that there is an election next year and Abbott is making a little ground already, they would need to phrase this very carefully to avoid a negative reaction amongst voters. Homeowners don't pay land tax at the moment, only investors; imposing this upon them would not be a simple PR task, certainly.

It is possible, but I'm not betting on it just yet.

Personally I prefer taxes that are low but broad-based, with as few exemptions as possible. A national land tax with revenue going to state governments would be better policy than exists at the moment.

This reduces compliance costs and the energy people waste on complying with or lawfully avoiding taxes.

Having said that, the chance of such a tax being announced in the next year or so is appoximately zero.

This is because it is common political lore that as Labor leader Bill Hayden refused to rule out a capital gains tax on the family home and that Malcolm Fraser ran an effective scare campaign against it.

Some argue that this cost Hayden the 1980 federal election. The beneficiary of this in the short run was Fraser and Howard, but in the long run it was Hawke.

 

[rugrat]

So much speculation here, but very little real evidence to go on. Truth is, this may be something to be mindfull of, but not worth worrying about unless it actually happens (which is unlikely to be any time soon). IF and when it happens, then you assess what the cost is in actual real terms and assess whether or not property still remains a viable investment strategy. If not, sell up and get out. But holding off now because of something vague which may or maynot happen, doesn't really make sense to me - you can only deal in the here and now.

 

[Graemsay]

Is a land tax necessarily a bad thing? I could see a number of advantages.

• If it replaces stamp duty then it reduces upfront costs when moving. That makes it easier for workers to relocate to more lucrative job markets.
• Similarly, reducing upfront costs will make entering the market easier for FHBs.
• A land tax might entice older home owners to downsize. If there's a shortage of larger properties for young families then this could mean a more efficient use of available properties.
• From a wider, economic perspective, keeping house prices at a reasonable level isn't a bad thing. A major market crash (as experienced in the US, UK, Ireland and Spain) causes significant pain.
• Lower property prices mean that FHBs are less stretched, and also improves access to the market.
• In the short term, lower prices would hurt investors. But it would make finding cashflow positive properties easier to find, which might make it a better.

I think that DanielG is probably being overcautious, but that's not necessarily a bad thing, particularly when buying a further two investment properties would require taking on a significant amount of debt.

I'm interested in seeing what the Henry Report comes back with. The noises coming from the committee are that they want to simplify the tax system, and that's a good thing.

 

[handyandy]

Personally I prefer taxes that are low but broad-based, with as few exemptions as possible. A national land tax with revenue going to state governments would be better policy than exists at the moment.

This reduces compliance costs and the energy people waste on complying with or lawfully avoiding taxes.

Absolutely agree.

Being stuck with a rather large state gov land tax bill I am all for spreading the tax burden amongst as many as possible, particularly all other landlords who do not pay current land tax and thus don't factor this cost into the rent charged.

Obviously I would only be in favour of this tax if it replace not only SD but also the current land tax regime.

This tax would be even better if you could directly pass it to the tenant - lets face if everybody is paying why not the tenant also - like a poll tax in England.

Cheers