Kids/FHO moving out of home then comes under your population increase category then.
Federal Budget Negative Gearing
- Thread starter ricflair
- Start date
Kids/FHO moving out of home then comes under your population increase category then.
I dont think so. Why would it?
I am not referring to pollies, who I agree, dont think logically, or they do, but loically about number of voters, interest groups, not logically in the sence of an economist.
What I am referring to is economists, economists arent saying NG supports the economy, or that the tax breaks are evened out by taxes in another area. they are almost universally saying NG distorts the economy. The henry review that suggested the abolition of negative gearing wasnt peer reviewed and found to be flawed, polititicans just ignored it.
Show me the 1 in 4 evidence, or a reputable economist who argues NG isnt an inefficient tax break.
Surely the master builders economist, or the tax accountants associations economist must be pro negative gearing??
In todays Property Observer,
"Pape has long been a critic of negative gearing calling for its banning on talk back radio in 2011 and telling a negatively-geared listener that “negative gearing is really just a socially acceptable way of saying ‘I’m losing money’”.
“Contrary to real estate rhetoric, it does little to increase the supply of new homes, since the majority of investors buy established properties. What’s more, it costs the Australian taxpayer billions of dollars in forgone revenue,” he says."
I accept it (Neg G) does little to increase the supply of new homes - I get it.
But the "I'm losing money" and 'it costs the Australian taxpayer billions" - wot - so the individual owner is losing and the taxpayer is losing , then who is benefiting - the tenant.
Negative gearing is a means of shifting wealth from the owner (who probably is also a taxpayer) and the taxpayer, to the tenant (who is also probably a taxpayer).
Tony
"Pape has long been a critic of negative gearing calling for its banning on talk back radio in 2011 and telling a negatively-geared listener that “negative gearing is really just a socially acceptable way of saying ‘I’m losing money’”.
“Contrary to real estate rhetoric, it does little to increase the supply of new homes, since the majority of investors buy established properties. What’s more, it costs the Australian taxpayer billions of dollars in forgone revenue,” he says."
I accept it (Neg G) does little to increase the supply of new homes - I get it.
But the "I'm losing money" and 'it costs the Australian taxpayer billions" - wot - so the individual owner is losing and the taxpayer is losing , then who is benefiting - the tenant.
Negative gearing is a means of shifting wealth from the owner (who probably is also a taxpayer) and the taxpayer, to the tenant (who is also probably a taxpayer).
Tony
But, if rents rise to such an extent that they are unable to be afforded by the majority of potential consumers, then they will make other arrangements.
As a result, prices will either have to fall to meet what the market is prepared to pay as tenants make other arrangements such as share housing/staying with family for longer, or the housing stock will have to be released onto the market, dropping prices for those looking at buying housing. Similar to what has been the case in the UK for years. Renting is a short term thing (except for Council Housing) because buying is much more affordable in most areas.
As a result, prices will either have to fall to meet what the market is prepared to pay as tenants make other arrangements such as share housing/staying with family for longer, or the housing stock will have to be released onto the market, dropping prices for those looking at buying housing. Similar to what has been the case in the UK for years. Renting is a short term thing (except for Council Housing) because buying is much more affordable in most areas.
If there is grandfathering with an adoption of the UK model there should be little impact. There's no rush to sell up as you can still claim NG, just new PIs would not have it's use.
If anything, the rental market would start to ease up.
Less PIs buying up properties and more available for home owners (former renters). Less renters changes that side of the equation and so rents would start to ease, and affordability start to improve.
This would start to force some PIs to sell up as yields drop (at discounts?), causing a further drop, eventually the market will find a new supply/demand balance.
That is another scenario.
If anything, the rental market would start to ease up.
Less PIs buying up properties and more available for home owners (former renters). Less renters changes that side of the equation and so rents would start to ease, and affordability start to improve.
This would start to force some PIs to sell up as yields drop (at discounts?), causing a further drop, eventually the market will find a new supply/demand balance.
That is another scenario.
I have zero issue with that proposal.
Shadow made an estimate at:
http://somersoft.com/forums/showthread.php?t=82601&highlight=cost+benefit&page=4
It should be treated as a start. One has to understand the base reference to make quatitative comparisons. For example, the figure of negative gearing cost being brandished by various sources range from about $3 billion to $15 billion. Almost certainly the figure is presented at the federal level and by just one federal agency, ie federal tax consideration only and excludes considerations for all other levels of government, federal or state. The explanation can also depends on whether the figures were based on all tenanted residential properties or just tenanted properties rented out by mums and dads. Likewise, whether it is based on claimed negative gearing losses by mums and dads or every taxable entity, ie including corporations and businesses.
I should be cautious about the thoroughness of any scholarly paper about negative gearing that does not at least cover the items Shadow mentioned at the posting above, or land tax or stamp duty.
Its not quite a schorlary paper, but in the absence of anything approaching such, lets use it for the time being.
Not sure why FHOG is included calculating NG, but so be it..
why would any of the figures in the second column change with a change to or removal of negative gearing? positive geared investors would have to pay rates, land tax stamp duty and GST. If all of the investors fled the market, the owners of those properties would still be paying rates, stamp duty etc. The proportion of those rates paid by investors might change, the development and approval fees would still be paid, but sold to O/O, upgraders and flippers rather than buy and hold investors.
Theres no mention in these figures of the costs of rent assistance. It always seems odd to me the government subsidises both the investor through NG and the renter thru rent assistance. Surely its at best a zero sum game.
From Shadows post referred above,
Annual government outgoings to property
Negative gearing $2.5b (tax forgone on $6.5b losses claimed)
FHB grants $0.7b ($7K for each of 100,000 FHBs)
TOTAL GOV SPEND $3.2b
Annual government take from property
Rates $9b ($1000 on 9m dwellings)
Stamp duty $6b ($15k on 400k transactions)
GST $6b ($40k on 150k new dwellings)
Development and approval fees $15b ($100k on each of 150K new dwellings)
Plus more fees for extensions etc
Plus land tax $6b
Plus CGT on sales
TOTAL GOV TAKE $42b+
NET POSITION... TAX REVENUE OF $39b+ each year from the housing sector
You are right except you have not included future supply.
Abolishing NG strongly affects future supply as often New Properties especially apartments are committed to by investors AND in all my 20+ years of property investing and work as architect, builder and developer in residential, commercial and government I have learnt 2 rules of success:
1. supply versus demand rules, noting else matters.
2. when in doubt refer rule number 1.
The NG changes in the 1980 stopped new stock commitments as remember, no one thought they go back, developers stopped developing, why, the banks would not lend, and was one of the factors of the late 1980's boom.
Even now without a min 50% pre-commitment the banks don't lend. So Abolishing NG will increase rents due to lack of supply. In fact even with BNG we are seeing that in Sydney due to 10 years of stagnation of growth since the bust of 2004.
Now a history lesson to expand my case:
In Sydney there was massive boom in prices 2000 to end 2003 fuelled by "equity mate" deal from banks, high wages growth and employment, low interest rates and people taking money out of the stock market after the dot com crash and into the 2 only other classes: property and/or cash.
Due to this demand, the prices went up and then made the media we heard stories like "investors putting $1k down on apartment selling it unbuilt (flipping) for a $25k profit in three months"
Investors rushed in and so did the developers. Everyone used Deposit Bonds. Pay a small $300 payment to get a 10% bond for $30k. How easy is that???
But it take time to develop so by end 2004: rates where going up and fast, the boom busted and many got caught unable to complete on these properties. Many had bought purely to hold and sell with no intention of even moving in.
So investors walked away from the contracts leaving the bond providers to pay out the 10% (who then chased the buyers) and then bond holders went under, investors fell over or had to finish and sell at loss. I know of many apartments bought for $300k selling for $180k. In 2005 prices for apartments were a min. 10% lower than 2004.
What happened next was nothing. Prices stagnated and every corner in the inner city had a half empty unit block sitting there. Even Viable Approvals never went ahead and fell over as the banks refused to accept deposit bonds as proof of pre- commitments. Also Rents went down as everyone who could buy as PPOR did and the bank of renters got smaller whilst you have empty units everywhere.
In this instance Developers using NG helped lower the prices of housing. WHo lost, developers & Investors.
FYI Peter 14.7
True there could be a supply effect in the future which is why there is case for keeping NG in some form for new developments only (like the FHOG is now for new builds only), but not for the 95% of investors that buy existing properties.
But how many owner Occupiers buy new properties excluding MC Mansions?
That is the percentage that matters.
And not all investors NG. According to RP Data and ABS
33% dont NG.
66% do NG.
http://blog.rpdata.com/2013/05/ther...ared-property-over-the-201011-financial-year/
Great thread and not bias one way or another, including this gem:
According to the ATO data, 72.8% of individuals that owned an investment property owned just one. Meanwhile, 18.9% of individuals owned 2 properties while just 0.9% of individuals owned 6 or more.
Interesting stuff, Peter 14.7
Just commenting because the unaffordable mob were blaming FHOG as a reason property has risen in price. catch 22.
Cant have it both ways....can you?
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Attachments
Some comments above, with apology to Shadow for any inadequacy in the interpretation of his figures.
To expand on Shadow's cost-benefit template on NG, I think it is reasonable to impute cost on post effects in the areas of personal investments, savings, government pernsions and services.
For example, how many of the mums and dads will invest in something else in the absence of IPs? Are they more likely to spend it than save and invest it? What would be the follow-on effect on Age Pension? Alternatively to wealth from IPs are mums-dads likely to have the capacity to gather as much from other pursuits, with the net effect that they are not likely to require government pensions and so on, later on? This issue is very interesting as many PIs are also salary earners, who undertake this activity because it can be accommodated within their lifestyle. Generally, this activity can only be engaged actively within a core age range before termination of salaried employment. After salaried employment dis-saving from assets will need to last a long time, with supplementation from government pensions and servies.
Even with two IPs, investors are likely to rely on government pensions and services in later life.
What would be the leakage of investments to other overseas destinations with the removal of NG? What is the multiplier effect to the rest of the economy and consequent drop in GDP?
What is the net impact on State governments with the loss of higher levies and overall drop in collections from PIs? What is the impact on supply of State housing? There is a direct linkage through the land tax that is levied only on PIs not owners in the ACT. The land tax is higher than the rates in my experience.
For example, how many of the mums and dads will invest in something else in the absence of IPs? Are they more likely to spend it than save and invest it? What would be the follow-on effect on Age Pension? Alternatively to wealth from IPs are mums-dads likely to have the capacity to gather as much from other pursuits, with the net effect that they are not likely to require government pensions and so on, later on? This issue is very interesting as many PIs are also salary earners, who undertake this activity because it can be accommodated within their lifestyle. Generally, this activity can only be engaged actively within a core age range before termination of salaried employment. After salaried employment dis-saving from assets will need to last a long time, with supplementation from government pensions and servies.
Even with two IPs, investors are likely to rely on government pensions and services in later life.
What would be the leakage of investments to other overseas destinations with the removal of NG? What is the multiplier effect to the rest of the economy and consequent drop in GDP?
What is the net impact on State governments with the loss of higher levies and overall drop in collections from PIs? What is the impact on supply of State housing? There is a direct linkage through the land tax that is levied only on PIs not owners in the ACT. The land tax is higher than the rates in my experience.
Disagree, housing is essential need being shelter.
It is also key to success in life, as it very hard to keep a job living out of a car. So IMO if rents rise and they cannot afford then more people end up homeless, seeking public housing: permanent or emergency which is great if we have the supply of that BUT, that is happening now all over the country.Waiting lists are 10 years long.
ALSO there seems to be a belief that if NG is taken, and rents drop, and prices drop developers will continue to build and supply. Well why would they sell at a loss?
Other than a drop in land prices all other developer costs are fixed.
Does anyone seriously see the state gov saying, to developers, "you know, we understand you are struggling so don't worry about putting in roads, services, parks, and dont bother to pay rates until you build because we need your supply. " As if!
Regards Peter 14.7
Disagree, housing is essential need being shelter.
It is also key to success in life, as it very hard to keep a job living out of a car. So IMO if rents rise and they cannot afford then more people end up homeless, seeking public housing: permanent or emergency which is great if we have the supply of that BUT, that is happening now all over the country.Waiting lists are 10 years long.
ALSO there seems to be a belief that if NG is taken, and rents drop, and prices drop developers will continue to build and supply. Well why would they sell at a loss?
Other than a drop in land prices all other developer costs are fixed.
Does anyone seriously see the state gov saying, to developers, "you know, we understand you are struggling so don't worry about putting in roads, services, parks, and dont bother to pay rates until you build because we need your supply. " As if!
Regards Peter 14.7
I wasn't referring only to new builds though.
Like in a lot of countries, these are generally sold at a premium to older stock, and become more of a status symbol.
As for the issue of rising rents - if suddenly no one is able to afford housing, are investors suddenly going to prefer having empty houses rather than achieving less rent than they really want? Are people selling going to not sell because they might not get as much as they did 5 years ago? Really?
As for the provision of infrastructure, while we elect governments that reduce, reduce and reduce even more the funding put aside for the provision of infrastructure in favour of vote buying handouts then we only have ourselves to blame for the costs associated with developing.
I would like someone ( I don't know how
) put up a poll.QUESTION For those who own one or more IPS, if NG was amended to quarantine losses against future gains, that is, you cannot calim aginst your other income woudl you sell your present IP,
ANSWER Yes or NO.
I would say no, we are mature, long term investors and CF + or almost. I think other would as well. But would I buy more? No if not CF+.
Peter
