Housing Affordability Push to Impact Negative Gearing?

[hobo-jo]

I know that there's been talk of an end to negative gearing for many years (most recently in the lead up to the budget), but I think there's a very real possibility that it comes to pass for established dwellings in the near future.

I have been in email contact with Senator Nick Xenophon and he mentioned that he has a series of proposals on the way in the area of housing affordability. These proposals are likely resulting from his position on the committee for the 'Affordable Housing' Inquiry.

And in a recent open letter he hinted where one of those proposals might be targeted...

And while you are at it, why not tweak negative gearing to encourage affordable new housing. It?s crazy to have a blanket tax code that rewards debt over equity.

The Grattan Institute estimates that $2 billion could be saved if negative gearing was slowly phased out. In the interests of full disclosure, I should say that a phasing out of negative gearing would impact on me personally, given the four properties I own. But if it means a balanced budget and a more affordable housing market for young Australians to enter into, then that is a price I am very willing to pay.

http://www.adelaidenow.com.au/news/...rable-in-society/story-fni6unxq-1227036221219

This is a hot topic and likely to get more politicised if prices in Australia's two largest capitals continue to rise, reducing affordability for those not yet in the market.

Also we have Abbott & Co who is looking to:

- Make budget savings
- Not appear to only be hitting the disadvantaged with cuts
- End the age of entitlement

I don't think there's been a more appropriate time to end negative gearing on established dwellings from a political perspective.

IMO watch this space over the next couple of months.

 

[The Fence]

So NG is the main problem with housing affordability ?

Kidding right?

 

[wategos]

NG has heavily impacted first home buyers by encouraging speculators instead and pushing up prices. The sooner it goes the better, now is an excellent opportunity with low interest rates reducing the impact of its removal.

 

[hobo-jo]

So NG is the main problem with housing affordability ?

Kidding right?

I didn't say that. Did you even read the post? There are a series of proposals on the way, IMO removal of NG for established dwellings will be one put forward and is more likely to be passed now than anytime in recent history.

 

[coastymike]

Such a policy change would actually be good. In most likelihood they would grandfather the provisions similar to pre cgt. I.e. if you have a negatively geared property it continues. Any new ones must be a new build. Would not hurt current investors. Would create an incentive for new supply and could end up a win-win. If grandfathered cant see how it would impact on rents like last time when it was removed. A stepped approach would work much better and be more politically acceptable.

 

[Scott No Mates]

NG has heavily impacted first home buyers by encouraging speculators instead and pushing up prices.

Using that logic, no negative gearing on properties which attract fhbg. Stops pushing the prices in this price bracket.

 

[wategos]

Using that logic, no negative gearing on properties which attract fhbg. Stops pushing the prices in this price bracket.

Yes most speculators are active in the fhb price bracket since that's where the higher yields are. Won't be feasible really though to restrict ng to certain price brackets, a total phase out on existing properties is what will happen.

 

[neK]

If they get rid of Negative Gearing will they also get rid of stamp duty and land tax?

 

[Jaggannath]

I think they should still allow depreciation of improvements to existing properties, as this will hopefully encourage some improvement of the quality of stock. Otherwise, I've kept my serviceability fairly neutral so if they're intending this I'll need to re-structure ASAP to take full advantage

 

[hobo-jo]

Such a policy change would actually be good. In most likelihood they would grandfather the provisions similar to pre cgt. I.e. if you have a negatively geared property it continues. Any new ones must be a new build. Would not hurt current investors. Would create an incentive for new supply and could end up a win-win. If grandfathered cant see how it would impact on rents like last time when it was removed. A stepped approach would work much better and be more politically acceptable.

I agree that grandfathering would be the most likely way forward, but in the article Xenophon talks about the personal impact given his ownership of 4 properties. Not sure whether he just threw that in there for non-factual self promotion or whether his proposal might actually affect current investors with negatively geared properties...

If they get rid of Negative Gearing will they also get rid of stamp duty and land tax?

I don't get the connection?

 

[neK]

I don't get the connection?

There isn't any. I'm just hoping that if they get rid of one, they'll feel kind and get rid of the others

 

[sanj]

There isn't any. I'm just hoping that if they get rid of one, they'll feel kind and get rid of the others

Absolutely no chance of that happening. If anything land tax should be increased or applied to all properties and stamp duty removed

 

[D.T.]

If you want affordability to go up, how about educating young people on their entitlement syndrome?

 

[hobo-jo]

If you want affordability to go up, how about educating young people on their entitlement syndrome?

All generations are hooked on entitlements of various kinds.

I didn't start the thread for another argument over whether housing is affordable or not (which has been done to death here).

I'm simply pointing out that a proposal for changes to negative gearing is likely forthcoming from Xenophon and I think the political environment could see it pass.

 

[D.T.]

But the title says affordability?

And xenophon comes up with whatever he likes in order to stir the pot because he'll never have to put money where his mouth his because he'll never be in a postion of power

 

[hobo-jo]

But the title says affordability?

And xenophon comes up with whatever he likes in order to stir the pot because he'll never have to put money where his mouth his because he'll never be in a postion of power

IMO there is a greater focus coming on housing affordability (you and I agreeing on whether it's affordable or not is beside the point), that along with Abbott looking for budget savings will provide the perfect political climate to see negative gearing changed. That's what I think we'll see based on connecting some dots.

The committee overseeing the inquiry isn't made up of only Xenophon:
http://www.aph.gov.au/Parliamentary...ate/Economics/References_Committee_Membership

.

 

[coastymike]

Xenophon understands the political game. Start high. I.e. full removal of ng, which he knows politically is unpalatable, and then negotiate downwards. A win win. He says he pleaded for the full removal but negotiated something down. Government at the time gets his support for a weaker version. He plays it well. Full removal would result in a party being removed from power and government is ultimately about staying in power. Helping the people just keeps them in power. Think it was the romans who said keep the people happy with bread and circuses and they wont revolt. All a game and xenophon knows that better than any of us. Its about giving them enough bread and ciruses so they can remain in the box seat.

 

[BayView]

NG has heavily impacted first home buyers by encouraging speculators instead and pushing up prices. The sooner it goes the better, now is an excellent opportunity with low interest rates reducing the impact of its removal.

NG has been around for decades - albeit a couple of years when it was abolished and then brought back in.

Housing affordability has never been easy - especially for FHB's, so to pick a window of time such as now; or the last say; 5-10 years is inaccurate as a guide on affordability.

Two things that never gets mentioned in the affordability whinge are:
1. Cost to build a house and the GST included - my own PPoR alone had GST component of more than most people's wage for a year.

With the cost of building increasing, it automatically drags up the price of existing stock properties with it.

2. Stamp duty - is a horribly expensive cost of buying an existing home. A standard $350k basic dwelling in Vic will cost you almost $8500 as a FHB, and almost $14k as a buyer like myself.

It is money gone, and for nothing.

With NG gone, what will automatically happen is many mum and dad investors with an IP or two will have more difficulty holding the IP's and will probably think twice about buying one, or will look at selling their current IP's.

This may cause a short term drop or stagnation of house prices.

The ramification could be a sever drop in rental stock.

Renters won't drop though; so the demand for rentals will increase and force rents up.

This will in turn make yields more attractive of course, and some investors will return to the market who are able, and more seasoned investors will increase their portfolio.

In the end, not much will change for affordability, but renting will become more expensive, and make it harder to save for a deposit on a first home.

 

[rabidz]

Such a policy change would actually be good. In most likelihood they would grandfather the provisions similar to pre cgt. I.e. if you have a negatively geared property it continues. Any new ones must be a new build. Would not hurt current investors. Would create an incentive for new supply and could end up a win-win. If grandfathered cant see how it would impact on rents like last time when it was removed. A stepped approach would work much better and be more politically acceptable.

I agree that grandfathering would be the most likely way forward, but in the article Xenophon talks about the personal impact given his ownership of 4 properties. Not sure whether he just threw that in there for non-factual self promotion or whether his proposal might actually affect current investors with negatively geared properties...

The grandfathering is good for the current investor, then..
Still benefit from the NG plus an increase in rent (like last time when it was removed)..

Maybe the drawback is less CG in the future?

 

[hobo-jo]

Full removal would result in a party being removed from power and government is ultimately about staying in power.

I think you are overstating it's importance. There are likely far more renters with aspirations to be an owner (votes to win) than negatively geared investors (votes to lose). Especially with interest rates as low as they are, many who were negatively geared a couple of years ago may not be now...

The ramification could be a sever drop in rental stock.

Renters won't drop though; so the demand for rentals will increase and force rents up.

Where would the rental stock go? Either the investment properties would be sold to other investors and rented out again or would be sold to owner occupiers reducing the renter pool (stock and people)... think about it, the balance doesn't change. Furthermore, Xenophon talks about restricting NG to new builds, so it would have the potential to increase total stock.