What do you think would happen if this were to actually occur?
My thoughts:
- rents would increase by a spastic amount
- economy would go to crap, as building would virtually cease
- govt would have to seriously spend massive $$$ on social housing projects, as many people would be priced out of rent
- govt makes earns less tax, and has to spend more money. Deficit will go out of control
There was a similar article in AFR last Friday (print version, p 5) - with calls for negative gearing to be disallowed.
To put things in perspective, I did some back-of-the-envelope calculations using figures provided in the article:
Negative gearing shortfall in 2006/07 F/Y was $6.4B
Assuming a population of 21.5M, 30% of whom are renters gives 5.45M renters
This works out to a average 'subsidy' (to landlords) of
less than $993 per year per tenant.
I have been doing these calculations every F/Y for about 5 years now and I have yet to find
anyone who can explain to me - if NG was removed -
how the Government can provide housing for all tenants in this country for less than $993 per tenant per year.
The Government can't!!! The only sector of the population who can provide housing for tenants at relatively low cost is the much-maligned property investor - and the Government knows - or should know - this!
Given the small percentage of the population who invest in property, it is hard to imagine how anyone could possibly think that invetsors have much influence on property prices at all. Sure, maybe a small influence, but it is well documented that supply and demand of owner occupiers is the real driver behind property price inflation (as it's described in the article).
You're right, Rob. Roughly 70% of home purchasers are OOs, around 20% are FHBs and the remaining 10% are investors, though these figures obviously fluctuate a little from time to time. So how can 10% of purchasers have such a huge effect on home prices? They obviously cannot.
Could you find a better example of that than the boom in prices on properties that suit FHB? In the areas I monitor, I've seen properties that, pre FHOG Boost would have hit the market at $250k now being listed around $280k-$310k. I can also tell you that the investors I know are staying away from this frenzy in droves. So, it can't be them pushing the prices up, can it?
There are many arguments for and against the allowed tax benefits for negative gearing, but I don't think propery price inflation has anything much to do with them.
Like you, I've observed the same sort of FHB frenzy here! One example: Daughter No #1 (who is looking for a PPOR) and I attended an OFI yesterday - a post-war chamferboard house which needed a good deal of work done before you could even occupy the place (termite damage, asbestos removal required, problems with damp ... I could go on and on). Asking price was 'Offers over $385K'. In their dreams!!! As we drove away, I asked her what she thought it was worth. Her reply was "$325K to $340K, depending on what Tony (our pest man) found ... but I'd start at $310K if I were interested." Exactly what I would have said, except that my first offer would have been $305K ... I've taught that girl well!
It is a great pity that there are not some well-informed submissions to the Henry inquiry. However, I suspect that this - like the other inquiries KRudd has initiated - is mere window-dressing, a case of being seen to be listening/doing something ..... and that the Government will do what they always intended to do, regardless.
Cheers
Lynn
