Housing Affordability Push to Impact Negative Gearing?

[spludgey]

I like that guy. Most of the time I agree with what he says.

While I don't really think it's going to come to pass, it would be great if they removed negative gearing.
It would increase tax revenue, decrease house prices and increase stock.
Plus for us it would have the added benefit of increasing rents (this should probably be seen as a negative for the general public though).

Personally, I would miss out on a few grand per year, but I'm sure that the higher yields would make up for it.

 

[wategos]

Removal of NG on existing housing would have no impact on rents, properties sold by investors still exist, they do not vanish. This is a common myth pushed by vested interests.

 

[spludgey]

Removal of NG on existing housing would have no impact on rents, properties sold by investors still exist, they do not vanish. This is a common myth pushed by vested interests.

I disagree about rents remaining the same. Let's assume that a third (I've got no idea of the real figure) of landlords negative gear. With the removal of it, I think it's likely that they would try and jack up rents to make up for this loss.
If a significant part of the market increases rents, the entire market will increase rents.

 

[D.T.]

Here's an idea.
Make interest on pppor's deductible (it is in some other countries) and suddenly renters can afford to own without disturbing the whole economy

 

[spludgey]

Here's an idea.
Make interest on pppor's deductible (it is in some other countries) and suddenly renters can afford to own without disturbing the whole economy

Non of my current tenants will ever be able to afford their own home, irrespective of what measures the government implements to help them do so.

 

[hobo-jo]

Plus for us it would have the added benefit of increasing rents (this should probably be seen as a negative for the general public though).

Personally, I would miss out on a few grand per year, but I'm sure that the higher yields would make up for it.

Just because a landlords costs rise doesn't mean that the rental market can automatically pickup the slack with an increase to rents.

You wouldn't necessarily "miss out", it would just be claimed against future profit from property (assuming you held it long enough to get there).

Here's an idea.
Make interest on pppor's deductible (it is in some other countries) and suddenly renters can afford to own without disturbing the whole economy

That may improve affordability for the first few who jump into the market, but would likely push up prices, so wouldn't be a sustainable solution to affordability issues.

 

[Rayz0r]

Capital Gains in the real affordability issue

Negative gearing is not the trigger for the affordability issue. NG was around for 20 years before the curve started to go exponential on house prices.

The 50% CGT concession introduced in 1999 along with the banking deregulation is really what drove the speculative boom. If you had to pay twice as much CGT on sale, plus the original costs of stamp duty and legals the returns would be much lower. So buy and hold would be more attractive, but it's not currently because rental yields are so low. So buying on interest only and waiting for inflation to give you some equity is the strategy most are using.

As someone who owns IP I think that removing NG and not removing the CG concession will actually push it more into investors favour.

 

[sanj]

Here's an idea.
Make interest on pppor's deductible (it is in some other countries) and suddenly renters can afford to own without disturbing the whole economy

No thanks. How would the government afford this?

 

[willair]

Here's an idea.
Make interest on pppor's deductible (it is in some other countries) and suddenly renters can afford to own without disturbing the whole economy

I agree I'm not 100% sure but I think the US Government does use that system,apart from the vulnerability associated with the 2008 debacle it works well..

 

[D.T.]

No thanks. How would the government afford this?

As opposed to having to afford to house people when investors bail out of the market?

 

[hobo-jo]

As opposed to having to afford to house people when investors bail out of the market?

What? They're all leaving and taking their houses with them?

Seriously...

 

[D.T.]

What? They're all leaving and taking their houses with them?

Seriously...

So you reduce the returns of an investment class and you don't expect some investors to look to move to other classes?

 

[rugrat]

I think the fundamental flaw to this discussion is the assumption that NG is a main contributor to unaffordable housing. I disagree with that basic premise. The number of houses in the FHO bracket that is owned by investors is proportionally small. Add to that, the shortage of rentals in many markets.
Getting rid of NG may discourage investors and but those who step up to buy in their place are people who would have been looking at buying. There is a HUGE portion of renters who still will not be able to buy, no matter how 'affordable' housing is, because of bad credit, no savings, etc, etc. Unless the government is also looking to increase FHOG and slash entry costs like stamp duty for OO as well.
Unless the government is going to step in with more public housing, they will simply end up with bigger housing problems.

 

[hobo-jo]

So you reduce the returns of an investment class and you don't expect some investors to look to move to other classes?

I would expect returns to improve via rents increasing over time (though wouldn't expect an immediate jump as a result) while prices rise at a slower pace or fall, improving yields. Some investors may choose to continue with negative gearing on newly built homes if the proposal from Xenophon is as expected.

I think the fundamental flaw to this discussion is the assumption that NG is a main contributor to unaffordable housing.

It's whole range of factors affecting affordability (high prices relative to income), stamp duty, tax policy (negative gearing and capital gains discount), FHOG (which actually makes affordability worse by pumping up demand, increasing prices), restrictive urban growth boundaries & more.

I agree not everyone will be able to buy even after changes are made.

 

[D.T.]

I would expect returns to improve via rents increasing over time (though wouldn't expect an immediate jump as a result) while prices rise at a slower pace or fall, improving yields.

If the capital growth of an asset class is slow and/or falling, would you stay in it or move to another asset class?

 

[hobo-jo]

If the capital growth of an asset class is slow and/or falling, would you stay in it or move to another asset class?

Depends on whether I was holding for yield or capital growth.

Investors leaving the property market doesn't reduce the existing pool of homes.

 

[turk]

Same story different cast.


Negative gearing to go?


http://somersoft.com/forums/showthread.php?t=70707

 

[Paul@PFI]

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?

So Mike - A unit trust may be a great investment. I could transfer the IP to another investor and it survives the chop Reminds me of the pre-99 unit trust benefit in SMSFs....Just bigger. More holes than a road sign out of Darwin.

One of the most clever proposals Treasury were modelling was to limit neg gearing. Impose a cap. However that favours the wealthy who may borrow to buy and positive gear. And use disc trusts etc...How might that work ? Only solution is to deny interest deductions beyond a certain % or all together just like main residence. This can affect CGT in long run. All out retrospective ban would be very inflationary or cause a brief price collapse as many exit the market. That's unlikely. I cant see a line drawn in the sand so neg gearing before a specific date is OK....Two tier property market would merely encourage new builds while existing stock is ignored...Two tier pricing ?? In crowded cities makes no sense.

 

[wategos]

As opposed to having to afford to house people when investors bail out of the market?

The opposite would happen, less speculators, more home owners and less renters requiring support later in life

 

[BayView]

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.

Would you buy a rental that had a cr@p yield, and had no tax benefits to soften the pain?

Didn't think so.

In the short term, the rental stock will decrease because the attractiveness will be gone for some.

Many will be sold cheap and bought by FHB's - good news.

However; renters are constantly hitting the market, so then you have less rentals available due to the FHB's buying - assuming the rentals are sold in areas attractive to where the FHB's want to buy.