Is it the end of negative gearing
- Thread starter Dan_p
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ANZ recently justified house prices to be where they are based manily on two factors: household income growth and interest rates. The paragraph states:
Despite the continued concerns about significant Australian house price overvaluation from some commentators, housing market fundamentals remain supportive. While house prices are driven by a complex set of influences (of which many structural influences have now been ‘capitalised’ into house prices), even a simplified analysis of household income growth and interest rates suggests that Australian house prices are fully explained by changes in these two factors. In the absence of large scale ‘forced’ selling from a major recession and escalating unemployment (as was the experience of many developed economies through the GFC), Australian house prices should continue to drift sideways to slightly lower through 2012.
If you wish to see some interesting graphs then see the link:
http://www.macrobusiness.com.au/2012/01/the-anz-happy-housing-report/
So sometimes it's interesting to state the reason for the statistic that is reported. I personally have learned to becareful what is reported or at least I may look for the justification of the empirical data.
So stating that Australian house prices are above 9 times the salary can seem like freightening news as compared to other coutries but if the two main factors above can explain the reason for it it may help to understand that it's not the same comparison at all.
I dont personally know this, I assume this based on economists modelling. While the science of economics has been compared to astrology, its the best tool we have so far. the point is, we intervene in the 'efficient' market all the time. Some of the consequences of intervening in the rental market with NG are detrimental, and some changes might redress these issues. they will obviously also have other consequenses, the economists surmise what these consequenses might be.
heres a rather out there example.
Are the profits from drug dealing higher because of the current risks posed by its illegality?
If drug dealing were legal, would there be an increase in investment? Would the returns/profit margins fall?
Prohibition in the states showed this theory to be true.
The US got rid of negative gearing around the same time we flirted with it in the 80's. While rents are higher there on average, and there are other subsidies for Ppor etc, the abolition of NG per se had some consequences and changed peoples behaviour in a way that some economists extrapolate to what might happen here....
I am not so sure as I dislike intervention too much. Sometimes market forces are better left to rest as too much intervention may cause more damage than good. Why did we have GFC?
I get your point but I do not think that a comparison between people's lives (drug dealing legal) and people's roofs over their heads is similar in comparison.
IMO if NG was abolished then people on higher incomes would be able to afford to invest as compared to people who earn less.
I think the market would be 'cleaned' out of most investors who would be heavly geared so most investors with lower equity would remain. So the rich would continue to get richer.
In your example I actually bought in further away suburbs, more affordable properties and many more than 2, so I may have been the exception - that's why I disagreed as I took different decisions than you mentioned.
However, I always said that people in Australia are penelised for buying their PPOR as it's after tax money whereas they are rewarded for IPs since most deductions can be claimed (but like someone else said, why providing roof over someone's head and treating IPs as a business shouldn't be allowed to receive tax benefits like other businesses can?).
I suppose it's how you classify it as a business or investment or roof over your head?
Apparently no change for now:
http://www.propertyobserver.com.au/...-to-negative-gearing-wayne-swan/2012040954195
I've mentioned it before elsewhere on another thread..............The investor for the most part, runs an administrative and relatively fiscally efficient housing provision service for the government to not have to concern themselves with.
http://www.propertyobserver.com.au/...-to-negative-gearing-wayne-swan/2012040954195
I've mentioned it before elsewhere on another thread..............The investor for the most part, runs an administrative and relatively fiscally efficient housing provision service for the government to not have to concern themselves with.
So the NSW Labor Party Leader John Robertson wants to have a debate.
He leads such a tiny fraction of the NSW Parliament they, like their Qld counterparts, are so few in numbers they barely constitute a party at all, more like a quiet gathering.
John's only job in the next few years is to sit down in the corner and quietly take notes as to how to run a state. He and his Labor colleagues have not a clue.
For once, the Federal Labor Treasurer has sensibly told them no, and so that's the end of that. Joy.
He leads such a tiny fraction of the NSW Parliament they, like their Qld counterparts, are so few in numbers they barely constitute a party at all, more like a quiet gathering.
John's only job in the next few years is to sit down in the corner and quietly take notes as to how to run a state. He and his Labor colleagues have not a clue.
For once, the Federal Labor Treasurer has sensibly told them no, and so that's the end of that. Joy.
"Everyone, I think, is concerned about how their kids are going to buy a house, how they're going to get into it,” said Robertson in an interview on Sky News.
Maybe those parents could teach their children good savings habits to start with.
True, the last 15 years or so has been a great ride on the credit wave that swept the world, but now that wave is gone. The success of many property owners over this period has been largely down to luck, not so much hard work for most people. How many on here just sat back and enjoyed the ride ? I know I did, 90% of the time. It's doubtful speculative (loss making) strategies and bad purchases will work out so well in the future.
I see exactly what you're saying here except I think that if you hold property long enough then winning is almost a certainty. It's also more difficult to do this than you might think though because hold it long enough and you basically replace everything and it costs you a small fortune, not mention sucks your sanity and really tests you at times. I know sometimes I'd rather be cashed up and going on holiday whenever I feel like it like most other care free Aussies but this downturn hasn't gone anywhere over the past few years and I'm finding things difficult like many others.
There is a light at the end of the tunnel though so you just gotta' hold on.
There is a light at the end of the tunnel though so you just gotta' hold on.
Quote I am not so sure as I dislike intervention too much. Sometimes market forces are better left to rest as too much intervention may cause more damage than good. Why did we have GFC?
Please show me a perfect market? I suggest all markets have one kind of intervention or another. An efficient market its just a theory. I dont think we can argue over whether there is market intervention, the argument is what sort and how much.
I get your point but I do not think that a comparison between people's lives (drug dealing legal) and people's roofs over their heads is similar in comparison.
I wasnt saying they were similar, I was saying thats how economists extrapolate. What about the US example when they got rid of NG? Is that comparable?
IMO if NG was abolished then people on higher incomes would be able to afford to invest as compared to people who earn less.
Without NG People on higher incomes would receive exactly the same treatment as those on low income. With NG, the tax treatment, and therefore the after tax returns difer if you are on a higher income.
Granted higher income people would still have more cashflow they could devote to investing if they chose, removing NG isnt going to revolutionise the wealth gap, or make poor people better investors, its just going to put them on the same playing field.
I think the market would be 'cleaned' out of most investors who would be heavly geared so most investors with lower equity would remain. So the rich would continue to get richer.
perhaps, but why would a rich person leave their money, their equity, in property, if they havent got the artificial yeild NG gives? they would find a better opportunity for the money, or the smart ones would anyway.
or they would get a better return. rather than be satisfied with a low rental on an old inner city terrace, they would do a reno and increase the rent, or convert to student accom, or sell and buy somewhere with a better yield.
In your example I actually bought in further away suburbs, more affordable properties and many more than 2, so I may have been the exception - that's why I disagreed as I took different decisions than you mentioned.
yes, almost everyone on somersoft I would guess to be the exception. Anyone with more than 2. the theory is NG helps you with the first couple, and after that its too hard to continue.
However, I always said that people in Australia are penelised for buying their PPOR as it's after tax money whereas they are rewarded for IPs since most deductions can be claimed (but like someone else said, why providing roof over someone's head and treating IPs as a business shouldn't be allowed to receive tax benefits like other businesses can?).
agreed, but the NG example is offseting income from a business (property investment) to another source of income (PAYG job). Whereas usually business losses are only set off against the same businesses profits, not the business owners PAYG job etc. the argument goes, if that business is not eventually profitable, the business owner goes broke and the business folds, so why not let them claim their losses in the meantime? With NG, this doesnt hold true because the losses can continue forever, and the 'profitability' or the yield doesnt have a great deal to do with the capital gain.
Please show me a perfect market? I suggest all markets have one kind of intervention or another. An efficient market its just a theory. I dont think we can argue over whether there is market intervention, the argument is what sort and how much.
I get your point but I do not think that a comparison between people's lives (drug dealing legal) and people's roofs over their heads is similar in comparison.
I wasnt saying they were similar, I was saying thats how economists extrapolate. What about the US example when they got rid of NG? Is that comparable?
IMO if NG was abolished then people on higher incomes would be able to afford to invest as compared to people who earn less.
Without NG People on higher incomes would receive exactly the same treatment as those on low income. With NG, the tax treatment, and therefore the after tax returns difer if you are on a higher income.
Granted higher income people would still have more cashflow they could devote to investing if they chose, removing NG isnt going to revolutionise the wealth gap, or make poor people better investors, its just going to put them on the same playing field.
I think the market would be 'cleaned' out of most investors who would be heavly geared so most investors with lower equity would remain. So the rich would continue to get richer.
perhaps, but why would a rich person leave their money, their equity, in property, if they havent got the artificial yeild NG gives? they would find a better opportunity for the money, or the smart ones would anyway.
or they would get a better return. rather than be satisfied with a low rental on an old inner city terrace, they would do a reno and increase the rent, or convert to student accom, or sell and buy somewhere with a better yield.
In your example I actually bought in further away suburbs, more affordable properties and many more than 2, so I may have been the exception - that's why I disagreed as I took different decisions than you mentioned.
yes, almost everyone on somersoft I would guess to be the exception. Anyone with more than 2. the theory is NG helps you with the first couple, and after that its too hard to continue.
However, I always said that people in Australia are penelised for buying their PPOR as it's after tax money whereas they are rewarded for IPs since most deductions can be claimed (but like someone else said, why providing roof over someone's head and treating IPs as a business shouldn't be allowed to receive tax benefits like other businesses can?).
agreed, but the NG example is offseting income from a business (property investment) to another source of income (PAYG job). Whereas usually business losses are only set off against the same businesses profits, not the business owners PAYG job etc. the argument goes, if that business is not eventually profitable, the business owner goes broke and the business folds, so why not let them claim their losses in the meantime? With NG, this doesnt hold true because the losses can continue forever, and the 'profitability' or the yield doesnt have a great deal to do with the capital gain.
It's hard to say how negative gearing affects the market, and what would happen if it was removed.
Home ownership rates are broadly similar in Australia, the US, UK and a number of European countries despite differing tax treatments and incentives.
House prices are generally higher in Sydney than in London, with the exception of the latter's ultra prime suburbs. Rents appear to be about the same, but I don't know both markets well enough to do a full like-for-like comparison.
My brother's paying less than I am in LA for rent, though he's paying less for a much bigger unit in a worse area.
From my (admittedly) anecdotal survey, I don't think that repealing NG would result in significant changes in the market over the long term. The US and UK function fine without it. However, it would probably be a rockier ride in the short term.
What is worth bearing in mind is that there's a degree of elasticity in demand for rental accommodation, and that might confound those expect a sharp rise in its cost. Namely, if renting becomes too expensive then people are more likely to group together to share a house, move back in with their parents, or choose a cheaper suburb.
The other thing to bear in mind is that if Australia faces a prolonged period of austerity then curtailing NG might be more attractive than adding a percentage point or two onto the basic tax rate. Right now in the UK there's a move to restrict tax free donations to charity in order to cut back the options for tax avoidance.
Home ownership rates are broadly similar in Australia, the US, UK and a number of European countries despite differing tax treatments and incentives.
House prices are generally higher in Sydney than in London, with the exception of the latter's ultra prime suburbs. Rents appear to be about the same, but I don't know both markets well enough to do a full like-for-like comparison.
My brother's paying less than I am in LA for rent, though he's paying less for a much bigger unit in a worse area.
From my (admittedly) anecdotal survey, I don't think that repealing NG would result in significant changes in the market over the long term. The US and UK function fine without it. However, it would probably be a rockier ride in the short term.
What is worth bearing in mind is that there's a degree of elasticity in demand for rental accommodation, and that might confound those expect a sharp rise in its cost. Namely, if renting becomes too expensive then people are more likely to group together to share a house, move back in with their parents, or choose a cheaper suburb.
The other thing to bear in mind is that if Australia faces a prolonged period of austerity then curtailing NG might be more attractive than adding a percentage point or two onto the basic tax rate. Right now in the UK there's a move to restrict tax free donations to charity in order to cut back the options for tax avoidance.
*cough* tax minimisation! *cough*
If ownership rates are broadly similar, then why are we (the govt) paying, in the form of lost tax revenue for NG?
if we want to have affordable rental houses, we can either provide a subsidy to investors through negative gearing, or a subsidy to renters, like rental assistance. Why are we doing both, to achieve braodly similar results of other comarable countries?
I would guess that there are plenty of renters not eligible for rental assistance from the government, but who still rent. If rents were much higher (due to no NG?) then instead of the government allowing NG plus giving rental assistance, it would be up for a much larger number of renters being eligible for rental assistance. So what it takes with one hand it will give with the other hand. That is what I think, but I don't know.
I'm sure the government has it all costed out and is doing what it thinks is the cheapest way for it to operate.
Well knowing the public service they probably costed it out and it's blown out beyond anything they ever imagined...
It's more about buying the votes of the 1 million + negative gearers, which is the reason it was reintroduced 25 years ago (to win an election) and can't easily be scrapped, despite the huge cost.
If affordable housing was a priority then NG wouldn't exist.
I disagree here. Governments (especially Labor) have demonstrated that they are incapable of investing in any infrastructure or construction without getting ripped off and taking taxpayers for a ride. Just look at the schools fiasco where it cost $800,000 to build one empty shed in the NT. The private sector can build 6 low-quality, liveable houses for that price, easily. It's just that red tape gets in the way which is why development is slow these days.
Id suggest subsidising rent would be more efficient.
Its means tested, even if these rules were relaxed somewhat with the end of NG. It is tied to average rental prices, where negative gearing is available to all types of rental property, and covers all expenses, rental assistance only covers part of the shortfall, based on the income of the renter, and the average rental for the area/city.
granted some people respond to these sorts of incentives by not increasing their income, so they keep the benifit (like some baby boomer retirees trying to get a part pension), likewise the removal of NG will provoke diferent responses by rental property owners.
there is a lot of money tied up by negative gearing. Im not saying the government (this or any other) could find a better way of spending it if they had it however. and Im not saying its politically feasable at the moment.
Its means tested, even if these rules were relaxed somewhat with the end of NG. It is tied to average rental prices, where negative gearing is available to all types of rental property, and covers all expenses, rental assistance only covers part of the shortfall, based on the income of the renter, and the average rental for the area/city.
granted some people respond to these sorts of incentives by not increasing their income, so they keep the benifit (like some baby boomer retirees trying to get a part pension), likewise the removal of NG will provoke diferent responses by rental property owners.
there is a lot of money tied up by negative gearing. Im not saying the government (this or any other) could find a better way of spending it if they had it however. and Im not saying its politically feasable at the moment.
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