Is it the end of negative gearing

[Dan_p]

What are your thoughts on Tim Williams (British housing expert) views of the Australian housing market, namely with the abolishment of negative gearing and land tax for all.

http://www.abc.net.au/news/2012-04-04/home-ownership-more-nightmare-than-dream-report/3932564

 

[D.T.]

Can't see it happening (although with retard gillard in, anything could happen). There's a massive rental shortage already. Surely they don't want to make it 'worse'

 

[Graemsay]

I've listened to the interview, and Tim Williams makes the following points:

• Stamp duty should be phased out and replaced with a land tax.
• Negative gearing is too generous an incentive for investors and existing owners.
• Too few homes are being built.
• McMansions are the wrong kind of development.

Essentially his argument is that the supply side of the housing market is subdued (30 to 40% of what should be built), whilst the demand side is being boosted. This is driving up prices, and making Sydney unaffordable for those in their twenties and thirties.

Williams's arguments are that the politicians aren't showing leadership. Negative gearing is one, but NIMBYism is another. It's a case of unintended consequences.

Incidentally, he reckons that removing negative gearing immediately would be politically impossible.

The report is here. I haven't read it yet, but Williams seems to be making sense in his comments.

 

[matto_]

Isn't this argument (end of negative gearing)a familiar argument which is trotted out quite often?

I wonder whether you could tie this sort of story in the media with certain stages of the cycle?a kind of contrarian indicator.

 

[Jamie M]

Yep, it surfaces every once and a while. Nothing new here.

Cheers

Jamie

 

[Scott No Mates]

Why should NG be removed from one type of investment over another? ie why should property investors lose NG but not equity investors?

Removal of stamp duty should have been introduced with the gst - this didn't happen.

Land tax for all? Now that's an incentive. It may be equitable but think of the ramifications

Building more houses ie boost supply - there are thousands of blocks which have been released around the country. Maybe it may not be feasible to build ie loss making so why would you bother?

 

[investor2009]

Pfft. Just try in Government and see what happens (again..) If it ever is phased out I don't believe it would last more than one financial year.

Unless the Gov can afford to supply most of Australias housing and are happy to fund the shortfall from our taxes? I understand were talking O/S here but same deal.

 

[evand]

Retard Gillard? How old are you? 14?

If there was a MASSIVE rental shortage already, wouldn't rents be sky rocketing? God, there are some dumb comments on here.

Can't see it happening (although with retard gillard in, anything could happen). There's a massive rental shortage already. Surely they don't want to make it 'worse'

 

[evand]

With any investment/business, the losses are tax deductible. What are you trying to say?

Why should NG be removed from one type of investment over another? ie why should property investors lose NG but not equity investors?

Removal of stamp duty should have been introduced with the gst - this didn't happen.

Land tax for all? Now that's an incentive. It may be equitable but think of the ramifications

Building more houses ie boost supply - there are thousands of blocks which have been released around the country. Maybe it may not be feasible to build ie loss making so why would you bother?

 

[jrc]

With any investment/business, the losses are tax deductible. What are you trying to say?

From the ATO

" Guide to non-commercial losses


Overview
If you're in business as an individual, either alone or in a partnership, and your business makes a loss you must check the non-commercial loss rules to see if you can offset the loss against your income from other sources, such as wages.


Income requirement and business tests

You can offset a loss from your business against your other income if you meet the income requirement (broadly, that your income for non-commercial loss purposes is less than $250,000) and your business passes one of these tests:

It produces assessable income of at least $20,000.
It has produced a profit in three of the past five years (including the current year).
It uses real property or an interest in real property worth at least $500,000 on a continuing basis.
It uses other assets worth at least $100,000 on a continuing basis."

 

[Graemsay]

The big problem, according to the report, is that Sydney property prices are deeply unaffordable on virtually any measure, and that this is down to a number of policy decisions that largely favour existing owners at the expense of those who don't.

Investor incentives, including negative gearing, are one issue. But it's only a small part of the story, and focusing on that is missing the point completely.

The result is not only that young people are priced out of ownership, but they're increasingly being excluded from renting; commutes are increasing, as people are being forced further out; and commercial rents have risen faster and higher than in other Australian capitals.

Oh, and developers are building the wrong kind of properties for a population that's increasingly composed of singletons and childless couples, but the planning regulations prevent higher density housing that's not apartments.

Sure, it's great for investors, but Sydney's share of Australian GDP is shrinking, whilst Melbourne's has actually increased, which suggests that it's having knock-on effects in the economy.

All in all, it's a bit of a mess...

If you're looking for investment tips, there's a discussion that Parramatta, Penrith and Liverpool become secondary centres in a polycentric city. In fact, Williams suggested Parramatta could be the focus of a new business district, in the same way that the Docklands have been in London over the last twenty or thirty years.

There's another audio interview at the ABC site, and more at William's blog.

 

[hobo-jo]

Why should NG be removed from one type of investment over another? ie why should property investors lose NG but not equity investors?

Which do you think is a more important target/role for government:

- Ensuring that there is a balanced set of tax rules that don't differ between properties and equities.

OR

- Ensuring there is an affordable and ample supply of property for all citizens regardless of whether they are an investor or not.

 

[Aaron_C]

Oh, and developers are building the wrong kind of properties for a population that's increasingly composed of singletons and childless couples, but the planning regulations prevent higher density housing that's not apartments.

That's simply not true. These days developers build a myraid of studio/1 bedroom apartments in the CBD which caters for the singles and childless couples. They make the most profit out of these type of shoeboxes because people pay more per sqm, the smaller the place is. How else would you cater for this market without apartments? Build sheds?

 

[Aaron_C]

I can't see the link between negative gearing and building more dwellings. People construct new dwellings based on the feasibility of sale price minus costs. The tax effect is a very minor consideration.

 

[tobe]

Id suggest the main argument around treating equities diferent to housing is simple. You cant have a PPOR share portfolio.

If negative gearing were removed, or more likley tweaked to favour new home construction/affordable rentals, Im sure our friends who work in accounting and financial planning will put together property syndicates, unlisted and listed RIETs that own residential properties, and give the same benifits as before tax wise.

Im in favour of removing NG. rents will increase, it will make the system fairer, in the sense that now someone with a high taxable income has a massive advantage, can in effect take more risk on the prospect of capital gains, than someone on a lower income. Without NG the market becomes more transparent. transparent markets are efficent markets. Efficient markets are good.

Negative gearing is certainly not rational economics.

 

[Tony3008]

I'm a beneficiary of the NG rules, but as a new(ish) Australian I am amazed they exist in their current form. The UK approach, which basically ring fences your property income and lets you carry forward current year losses to set against future profits from property letting but not against income from other sources makes much sense to me (as to the why single out property argument, I would apply the same rule to other investment classes). The supply argument is pretty hard to sustain too, since all the advice here is to run away from new OTP and house and land developments and buy established properties, at which point an IP buyer is in competition with a prospective OO. NG is a gift to the spruikers who use it to make bad buys look good.

This said, the political reality, as said in previous posts, is that changing the present system is not going to happen. But then they said that about OO mortgage interest tax relief in the UK, now a distant memory. T.

 

[Aaron_C]

Im in favour of removing NG. rents will increase, it will make the system fairer, in the sense that now someone with a high taxable income has a massive advantage, can in effect take more risk on the prospect of capital gains, than someone on a lower income. Without NG the market becomes more transparent. transparent markets are efficent markets. Efficient markets are good.

But that's the thing tobe - people with high taxable incomes are not necessarily the 'rich' people. More likely than not they are a) PAYG workers or b) Self-employed workers with a bad structure/fall under the PSI rules. Those who are really wealthy use proper structuring to minimise the amount of tax they pay anyway - while most people who work for a salary simply do not have this option. Negative gearing is one way for workers to do so - and removing that incentive really only negatively affects the people you are trying to help.

 

[tobe]

these people, who I agree are not rich, but have high taxable incomes, would be better served negative gearing with a small business, or a share portfolio or buying an affordable rental property.

as it stands at the moment, they are more likely to purchase an existing property somewhere in the inner burbs with a good history of capital growth and a woeful yield. because of the massive transaction costs, they go for the biggest purchase they can afford. They stop at one, maybe two, and sell them before they make much of a profit.

They have lost, the government has lost (receipts from payg, but gained stamp duty I guess), the estate agent won, the tenant won, and the vendor won.

If negative gearing were restricted to new properties, or properties with a certain yield, or restricted to a percentage of income, or capital invested, then this person would make diferent decisions, that better benifited themselves and the wider community.

 

[Dan_p]

http://www.news.com.au/money/proper...rt-homes-for-all/story-e6frfmd0-1226319120810

Dr Tim has been at it again.

It recommends that negative gearing and untaxed capital gains be reconsidered by the government in an effort to drive down house pricing for first-time buyers.

And by the way who are these people?

"The Homes for All report is an action plan released by the McKell Institute, a new independent body that aims to develop policy ideas and encourage public debate."

 

[jaycee]

I've listened to the interview, and Tim Williams makes the following points:

• Stamp duty should be phased out and replaced with a land tax.
• Negative gearing is too generous an incentive for investors and existing owners.
• Too few homes are being built.
• McMansions are the wrong kind of development.

Essentially his argument is that the supply side of the housing market is subdued (30 to 40% of what should be built), whilst the demand side is being boosted. This is driving up prices, and making Sydney unaffordable for those in their twenties and thirties.

Williams's arguments are that the politicians aren't showing leadership. Negative gearing is one, but NIMBYism is another. It's a case of unintended consequences.

Incidentally, he reckons that removing negative gearing immediately would be politically impossible.

The report is here. I haven't read it yet, but Williams seems to be making sense in his comments.

Isn't this sort of what OA was talking about in another thread and got ridiculed for suggesting anything at all was required or should be done and that twenty somethings should just get on with it "like we did when 6 of us lived in a cardboard box in the middle of the road" ?