negative gearing review by Govt - what is the status??

[mixedup]

Anyone know the status of the negative gearing review that is going on? Here is a link to the Senate Select Committee on Housing Affordability in Australia Report that had a recommendation that it be reviewed.

http://www.aph.gov.au/Senate/committee/hsaf_ctte/report/c04.htm

If there were going to be changes I wonder when they would be kicked in?

 

[willair]

Anyone know the status of the negative gearing review that is going on? Here is a link to the Senate Select Committee on Housing Affordability in Australia Report that had a recommendation that it be reviewed.

http://www.aph.gov.au/Senate/committee/hsaf_ctte/report/c04.htm

If there were going to be changes I wonder when they would be kicked in?

Thanks for the link..willair..

Typical term of mortgage (years)
Typical loan-to-value ratio for new mortgages (%)
Variable rate mortgages (% of total)
Owner-occupiers with mortgage (% of total)
Home equity with-drawals
Mortgage market index#
Use of mortgage-backed securities​

Australia

25
80
85
45
yes
0.69
extensive​

Austria

25
60​

no
0.31​

Belgium

20
83
25
56
no
0.34
limited​

Canada

25
75
30
54
yes
0.57
extensive​

Denmark

30
80
32​

yes
0.82
no​

France

15
75
20
38
no
0.23
limited​

Germany

25
70
30​

no
0.28
yes​

Hong Kong

20
70*
most​

yes​

Ireland

20
70
most​

limited
0.39
limited​

Japan

25
80
21​

no
0.39
limited​

Netherlands

30
90
26
85
yes
0.71
extensive​

NZ

25-30
95
16​

limited​

Norway

17
70
most​

yes
0.59
no​

Singapore

30-35*
80*
most​

yes​

S. Korea

20*
56
most​

yes​

limited​

Sweden

25
80
98​

yes
0.66
limited​

Switzerland

15-20
80*
35​

no​

limited​

UK

25
75
97
60
yes
0.58
yes​

USA

30
80
22
65
yes
0.98
extensive​

 

[Pushka]

It seems the main thrust of that proposal is not eliminate negative gearing as such, but rather the 50% reduction of capital gains for assets held more than 12 months. When negative gearing was scrapped in the 80's, it wasn't restrospective. So exisiting arrangements weren't affected. But if they did eliminate the 50% reduction of CGT, that could be done immediately, and everyone selling would be affected!

 

[HiredGoon]

Altering the tax rules now would cause people to blame the downturn on that.

Heck, Australia's securitised mortgage market has collapsed, with far higher household debt levels and house prices to wage than the USA and our problems are apparently due to "US sub prime"

I say leave the tax system alone so that the downturn can be correctly blamed upon people borrowing too much money and speculating on non-productive investments and thus draining the country of funds for no extra real wealth (only ponzi-wealth)

Then, at the bottom of the cycle talk about removing negative gearing to stop it happening again. There will probably be lots of public support and hatred of specufestors (who will/should be held accountable for economic woes of the population) to tap into.

 

[BayView]

Altering the tax rules now would cause people to blame the downturn on that.

Heck, Australia's securitised mortgage market has collapsed, with far higher household debt levels and house prices to wage than the USA and our problems are apparently due to "US sub prime"

I say leave the tax system alone so that the downturn can be correctly blamed upon people borrowing too much money and speculating on non-productive investments and thus draining the country of funds for no extra real wealth (only ponzi-wealth)

Then, at the bottom of the cycle talk about removing negative gearing to stop it happening again. There will probably be lots of public support and hatred of specufestors (who will/should be held accountable for economic woes of the population) to tap into.

How are specufestors responsible for the economic woes of the population, when all we do is save really hard, then buy a property for as cheaply as we can using our savings, then sit on it for a few years until the prices go up, and then do it again, but this time using our own equity to do it, and repeat, and repeat?

All I've done is keep buying houses that someone was trying to sell. I helped them out, and then provided some lovely roofs for some unfortunate renters' heads, and removed myself from the dependancy on the Govt in my older age. I am going to cost the population less than most retirees kicking around.

Give me a break HG.

Actually, no; you're right - I should have been helping the economy to "grow" by spending all my money and then some on consumer goods, using my credit card because I've spent all my cash already, then retire broke. How selfish of me.

Thank god I didn't hoard it all away in gold bars, or an ING account and take the money out of circulation - that would have been very selfish as well.

Aren't the populations' woes caused by lots of people buying houses with loans they can't service? Wouldn't this be mostly their own fault, and also some of the Bank/MB's fault too? Or maybe it's the Banks fault who simply must make a record profit at all costs for their shareholders, so let's whack the rates up a little more. Can't pay the loan back? Sorry; we have dividends to pay.

Public support...yeah; let's get rid of these greedy Landlords that supply us with a roof over our heads. How dare they get rich off my rent. Damn them all!

When the Govt so sensibly removed the neg gearing benefits back in the '80's, there was an immediate sell-off of IP's by all the neg gearing investors. OOPS!

This caused the prices to drop as you can imagine, but worse still, it caused a sudden shortage of rentals. So there was a rental spike. DOUBLE OOPS! "QUICK: GET THE BLOODY NEG GEARING BENEFITS BACK ON OR WE'RE OUT OF A JOB, PAUL!"

Needless to say, the pos geared investors rubbed their hands together until they got 3rd degree burns. The rich just keep on gettin' richer it seems. Pack of b@stards - it's not fair!

Given that the rental market is very tight at the moment, I suspect that to do the same thing again will cause:

a) severe strain on renters,
b) cause the housing market to slip back,
c) and would be political suicide.

So, in order of importance of these factors as an influence on their decision, I'd say no.C will be the decider.

"No action taken Mr. Speaker."

 

[HiredGoon]

How are specufestors responsible for the economic woes of the population, when all we do is save really hard, then buy a property for as cheaply as we can using our savings, then sit on it for a few years until the prices go up, and then do it again, but this time using our own equity to do it, and repeat, and repeat?

Because that isn't what happens at all. Most investors use high levels of debt to buy existing houses.

let's get rid of these greedy Landlords that supply us with a roof over our heads. How dare they get rich off my rent. Damn them all!

But they're not supplying rooves over peoples heads. They're taking existing rooves, bidding up the cost of those rooves with borrowed money and then claiming tax breaks.

If the investors had just let the house be sold (for a lower price as there was less buying competition) to an OO then there would be the same amount of shelter, less debt and less tax lost to the government.

If investors build houses, that's different and does provide useful results. That's why I support negative gearing on new builds, just not on existing houses.

And they're not getting rich off rents, they are using the rents to partly-cover the costs of their borrowed money while they gamble on prices to keep rising and deliver them low-taxed capital gains.

I am going to cost the population less than most retirees kicking around.

You reduced your taxable income - this causes other people to have to pay more (or have less tax cuts)

Yes, you may not claim a pension, which is a straight forward transfer of money from younger people to you in your retirement. But instead, you participated in borrowing money and driving up house prices. If indeed house prices remain high so that you retire as you believe you will - where did that money come from?

It comes from young people having to pay a lot more for their shelter. The money is transferred from young workers => old non workers anyway, as with the pension, but since the young buy houses with borrowed money - any money you recieve they must also pay interest on. Since Australia has low savings rates, much of that money comes from overseas. Interest is a very large component of our negative balance of paymetns.

So the net result is actually you cost the country more as before the pension was a 0 sum game, but interest overseas turned it into a negative sum game for the country.

I should have been helping the economy to "grow" by spending all my money

Almost every use of money is better than it going on interest payments overseas to bid up existing asset prices.

hope I'm not the only one who sees the irony in Australia's economic crisis du jour-the chronic shortage of rental accommodation? A shortage of houses and apartments for rent? Hang on, didn't we just have Australia's biggest ever housing boom? Wasn't the boom driven by investors, rather than homebuyers? Weren't all those "Mum and Dad" investors building units for rental accommodation? If so, how come we've run out of rental housing, just two years after the boom ended in the Eastern States?

And is the solution simply to drive rents up ten or twenty per cent, as seems to be happening? Or should we just abolish stamp duty to kick life back into the building industry and solve the problem with another round of speculative building, as the Property Council recommends?

No way! What we should do instead is take stock of precisely why we've ended up in this completely senseless pickle. The root cause of the problem is that speculation, and not investment, has determined how many houses are built in Australia. So-called investors purchased apartments, not to rent them out, but to make a profit by selling them down the track for a higher price.

In fact, they expect to lose on their rental income, because that earns a nice little tax break, from the combination of negative gearing and a 50% tax rate on capital gains.

This scam worked a treat while housing prices went ever higher, and there was always another "investor" willing to grab the baton on this relay race into the stratosphere. But its days have come to an end. Prices have been driven so high that, not only can first home buyers no longer afford them, but even "investors" no longer believe that there will be other "investors" further down the track.

As a result, the supply of new housing has dried up, and simultaneously we've realised that not all that much was being built anyway, relative to demand: why build a new place, when the negative gearing and capital gains tax trick work just as well on a second hand place?

Let's face it: this was always a foolish way to run a property industry, and it was always going to come to grief. Many years ago, a certain prescient economist, writing of a similar period of economic madness, put it superbly:

"Speculators", Keynes wrote, "may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."

Ill-done indeed! And the legacy of our speculation-driven property market is not restricted to the unpalatable combination of unaffordable houses, excessive rents and inadequate accommodation. The truly insidious side of the housing casino is the debt it's led us to accumulate. The Reserve Bank noted this week that housing prices rose 175 per cent from the mid-1990s. But mortgage debt rose by almost 450 per cent over the same period! As a result, if prices fall, many "investors" will have debts that exceed the value of their investments. We are now in the invidious situation of having house prices that we can't afford, and yet we also can't afford to have them fall.

The solution is certainly not to alter policies so that the bubble resumes, speculators once again start building apartments in order to sell them to other speculators, and as a by-product, renters can once again find apartments rented by landlords who are losing money on the deal. Instead we have to find a way to have a housing industry that builds on the basis of demand for accommodation-and not on the basis of tax-supported speculative gains.

That policy isn't likely to be found by looking in the Anglophile countries, all of which seem afflicted by the casino approach to property. It's more likely to involve rental arrangements similar to those of Europe, where tenants have-or had-greater rights and longer-term tenancies. Working out the details of such a policy, and introducing it into Australia's home-ownership obsessed culture, won't be easy. But ultimately something like it has to be done.

What would be easier now, and what would have been impossible at any previous time, would be to abolish negative gearing and the preferential tax treatment of capital gains on property. Negative gearing, and the concession on capital gains, only work when property prices are rising-and not only is that the last thing we need, at the moment it's also the last thing most Australians expect.

http://www.abc.net.au/rn/perspective/stories/2007/1857396.htm

 

[Aaron Sice]

sorry but it p1ss3s me off - "rooves" is incorrect - it's actually roofs.

sorry...

The root cause of the problem is that speculation, and not investment, has determined how many houses are built in Australia. So-called investors purchased apartments, not to rent them out, but to make a profit by selling them down the track for a higher price.

so speculators don't rent them out, we just sit on them - emtpy?

what a great idea! i'm sure the govt will give me a solid tax break on an investment with no yield. i've heard it's all the rage and they encourage it!

 

[Dazz]

That was an interesting and engrossing read HG. You have enunciated your position well.

Surprisingly, I found myself nodding in agreement with most of the points you raise.

You would make a fine Housing Minister for Australia.

Unfortunately, housing people is not of itself the primary objective of the investor. People are always arguing with you on this forum as we simply have different objectives.

You wish for affordable shelter for the masses. No problem - however, this is not aligned with what investors in a democratic capitalist system wish for.

Investors treat property as the "vehicle" for their wealth building activities. It could be a share or a business, but they have chosen property - in all it's forms. Not all properties you must remember provide housing for dwellers. There is a vast array out there, and you seem to be honing in on houses and apartments for young folk. I'm not in that market, so I haven't commented much to date.

Good luck with your noble struggle. I'm sure you have the 100% backing of the peak welfare groups and all charity organisations in the country.

 

[LynnH]

You reduced your taxable income - this causes other people to have to pay more (or have less tax cuts)

I couldn't let this one pass!

With respect, HG, that is a load of absolute rubbish!!!

The taxes that other people pay are determined by two things: their income and the government-set taxation rates - and NOT by what LA_Aussie declares in his tax return (or even by what every property investor declares on their tax returns)!!!

Sheesh!

Cheers
LynnH

 

[Dazz]

Lynn, you're looking at it from an individual citizen who invests in property and pays taxes. From that perspective - like all of us here - you are 100% correct.


HG is looking at the situation as if he is the Federal Treasurer of Australia who is receiving the tax take from the entire country and then formulating policy on tax rates. From that perspective - like none of us here, except HG - he is 100% correct.


Can you see the distinction, even if it makes not a jot of difference to you as an individual property investor ??

 

[BayView]

HG, investors don't bid up the price of houses - EVER. The investors who do; don't remain investors for long.

That is what the emotional owner occupier does who wants to live in it.

I've made offers on dozens of houses that I would love to own as an investor, but some whacker outbid me. Good for them; the figures for me wouldn't have worked, so I walked away.

I want to find the $500k house that I can buy for $200k, and rent out for $500 p/w. Or figures similar to this at a lower price point maybe.

We simply work out what we can afford to spend, then go out and find the best property we can find, in the best area we can find, for the cheapest price we can, with the maximum rent we can get.

You talk about investors using debt to fund the purchases like it's a new thing, and a bad thing - it's been done for centuries.

I may have reduced my taxable income; but I still pay a fair whack of tax like everyone else. Don't start grouping me in with all the single-mother-with-five-kids-to-different-fathers set, who pay NO tax and live off our endeavors.

In any case, the Govt makes the rules of the property investment game, and we simply play by them. You can't blame us for the status quo. If you're so upset by the structure, go into parliament and get it changed. Good luck with that.

The simple act of borrowing money doesn't drive up the prices. It's what the borrower then does with those borrowed funds that drives up the price.The same can be said for credit. If people only ever used their hard-earned, there would be no consumerism; at least not at the current levels.

A person on $200k per year can borrow a lot of money, and can then afford to buy a more expensive house. They are not likely to go shopping for a $100k dog box, and try to low ball the Vendor just to keep the prices down (unless they are an investor). They are going to try and find the best housethey can, fall in love with it and, if there is some competition, they'll pay the premium price.

I guess if we all saved for the entire purchase price, the prices would remain lower, but it would mean that the lower income earners may never get to own a house in their lifetime. Do you want that? Who would be rich enough to own one? Imagine how few rental properties there would be; the whole system wouldn't work.

At the end of the day, there simply has to be incentive for people to invest in property, otherwise the Govt would have to provide it - welcome to Communism. We all know how well that works (for a chosen few).

So, you need to accept the situation as it is, and move forward.

Be careful what you wish for, because as a renter, you may end up on the street.

 

[evand]

Between 2000 and 2003 i saw buses full of investors paying way over the odds for investment properties. They were all chasing the high yields that were on offer in SE QLD, Regional NSW and Tassie mostly. But they were just about everywhere and all buying multiple properties. Mostly over the asking price.

It wasnt owner occupiers doubling the prices of property in little towns like Kandos in 2 years. I was competing with one lady and her daughter who bought 4 houses in one day there. All over the asking price to secure them. And that was pretty much par for the course at that time.

Thats when that particular boom really took off, when investors got involved.

As far as taxation goes. What HG means is if the billions in deductions from property investors (including myself) lower the amount of overall tax revenue the only solution is to lift the tax rates or broaden the base (or both) to increase the revenue.

HG, investors don't bid up the price of houses - EVER. The investors who do; don't remain investors for long.

 

[depreciator]

The Goon is like alot of other people who complain about the cost of housing and the terrible unfairness of it all.
I have a mate like that. Goon, I've actually given him a few of your arguments to use against me. I think he's scouting his suburb looking for vacant houses so he can help prove to God knows who that there are thousands of them out there and that the housing shortage is a myth. He loved that one, though he's not sure what it will achieve. So far he's only found a few uninhabitable ones, but he's still looking.
My mate doesn't own a house.
He admitted that the cost of the things was the barrier i.e. it's not some ideological thing.
So I said: 'If prices came down, you'd like to buy one.'
'Of course', he said. (I know he'd be into it like a rat up a drain pipe.)
'And then', I said, 'you'd be hoping like hell it went up in value?'
'Well, um, yeah.'
'If prices really came down and you could afford it, you'd by a couple?'
'I guess so.'
'So we're really no different. I just managed to do what you want to do a bit earlier.'
He scurried off to look for more empty houses.
Scott

 

[oracle]

Hahaha ...Nice one!!

The Goon is like alot of other people who complain about the cost of housing and the terrible unfairness of it all.
I have a mate like that. Goon, I've actually given him a few of your arguments to use against me. I think he's scouting his suburb looking for vacant houses so he can help prove to God knows who that there are thousands of them out there and that the housing shortage is a myth. He loved that one, though he's not sure what it will achieve. So far he's only found a few uninhabitable ones, but he's still looking.
My mate doesn't own a house.
He admitted that the cost of the things was the barrier i.e. it's not some ideological thing.
So I said: 'If prices came down, you'd like to buy one.'
'Of course', he said. (I know he'd be into it like a rat up a drain pipe.)
'And then', I said, 'you'd be hoping like hell it went up in value?'
'Well, um, yeah.'
'If prices really came down and you could afford it, you'd by a couple?'
'I guess so.'
'So we're really no different. I just managed to do what you want to do a bit earlier.'
He scurried off to look for more empty houses.
Scott

 

[HiredGoon]

Of course I would buy a house if they were cheaper, price is why I rent and save/invest the difference (not doing too bad - most of the ASX falls were financials, oil users (airlines) and consumer discretionary, I'm in energy, materials, consumer staples)

I probably wouldn't buy an IP, unless there was a large yield premium over other investments due to the work and lack of liquidity/ability to only use non-leveraged small parcels vs cash or shares.

Negative gearing and 50% capital gains discount do help push up prices, but they ONLY WORK DURING TIMES OF POSITIVE PRICE GROWTH. They will push up prices higher in a cycle and then be absolutely no help during a downturn.

Some things, like immigration or higher wages push prices up via fundamentals - pushing support prices up permanently. But those two tax benefits just make the amplitude of a boom higher - meaning that the correction will be from a higher point and offer no fundamental support on the way down.

 

[LynnH]

As far as taxation goes. What HG means is if the billions in deductions from property investors (including myself) lower the amount of overall tax revenue the only solution is to lift the tax rates or broaden the base (or both) to increase the revenue.

evand

I did the calculations based on ATO figures a couple of years ago (I have posted them previously - http://www.somersoft.com/forums/showthread.php?p=406710#post406710 ) and it worked out that the government paid out to investors on average a total of around $667 per tenant per annum to provide housing for those who rent. If the government had to meet this housing obligation themselves, then it would cost them much, much more to do so - and mean much, much less money to spend on other government spending programs.

Whatever way one likes to look at it, the fact is that subsidising property investors to provide housing for tenants is by far the most economically feasible approach - governments of all political persuasions know this (as a result of the lessons learned from Keating's 1985 decision and its subsequent reversal in 1987). And no matter what 'noise' pollies may make in attempt to placate 'the masses', I don't think this is likely to change any time soon.

Cheers
LynnH

 

[HiredGoon]

AFTER THE CRASH (so that cutting neg gearing isn't blamed) I think the government would be better off making it so that interest is only tax-deductible for useful investment, not just speculating on asset prices (that is, increasing future productivity via capital goods, expansion etc. Borrowing to bid up existing assets should not be tax deductible).

If the government built houses or paid for infrastructure with the revenue lost from negative gearing money, I think we'd get a lot more for our money.

to provide housing for those who rent

But most landlords don't provide housing, ~95% or so just buy existing housing - causing no new net supply of houses and thus just change a potential owner occupier into a renter (using their tax money!)

A lot of people on SS rent, and in fact the system works like that - it is more tax advantageous for 2 people to rent from each other than live in their own houses - how silly is this?

Keating's 1985 decision was mythologised by the real estate industry and landlords into a justification for negative gearing. As soon as it was introduced prices jumped after being in decline and rents didn't go down. This pretty much proves in my eyes that negative gearing just allows landlords to borrow more which is capitalised into house prices, not that it allows them to rent out houses at a lower price.

How many people only borrow as much as they could have w/o negative gearing and then use the refund to lower rents? Ha! See how silly it sounds?

Another effect of negative gearing is that the taxpayer pays some of the interest rate rises for investors, thus if the RBA wants to slow the economy, it must tighten harder than it might have needed to. Thus OOs are paying higher interest rates than they need to because of negative gearing. This idea needs to be a bit more widespread - imagine framing it this way "get rid of negative gearing to lower interest rates"!

http://bubblepedia.net.au/tiki-index.php?page=NegativeGearing

 

[depreciator]

Of course I would buy a house if they were cheaper, price is why I rent and save/invest the difference...

I probably wouldn't buy an IP, unless there was a large yield premium over other investments due to the work and lack of liquidity/ability to only use non-leveraged small parcels vs cash or shares.

I keep forgetting, Goon, that in your indignant shrillness you're really just a bloke who wants to buy a house and is hoping desperately that prices come down far enough for you to get a toehold. It's uncanny how similar we all are deep down when we strip away the posturing.
How far off is that baby of yours? I hope for your sake your long predicted catastrophic crash happens soon - your wife might not be as keen on renting when the baby comes along (they get like that).
It's also good to see that you would even consider buying an IP. You must have spent a bit too long over here on the dark side. Careful, your mates at that other site might disown you.
Tell me, Goon, if you did buy an IP, would you accept the tax breaks?

 

[BayView]

Between 2000 and 2003 i saw buses full of investors paying way over the odds for investment properties. They were all chasing the high yields that were on offer in SE QLD, Regional NSW and Tassie mostly. But they were just about everywhere and all buying multiple properties. Mostly over the asking price.

It wasnt owner occupiers doubling the prices of property in little towns like Kandos in 2 years. I was competing with one lady and her daughter who bought 4 houses in one day there. All over the asking price to secure them. And that was pretty much par for the course at that time.

Thats when that particular boom really took off, when investors got involved.

As far as taxation goes. What HG means is if the billions in deductions from property investors (including myself) lower the amount of overall tax revenue the only solution is to lift the tax rates or broaden the base (or both) to increase the revenue.

I remember the Tassie boom back in early 2000's where properties were selling over the asking almost every time because the yields were so good. Once the yields dropped too far, the investors disappeared, and many of the areas proved to be basically duds with few renters and no cap growth.

The investors offloaded after a few years and the prices returned to a normal range pretty much.

This sort of thing does happen in localised areas from time to time, but overall the price growth is fuelled by o/o's who make up 70% of the sales.

With the taxation, I don't think the Govt would continue to cop a massive drop in possible tax revenue by providing deductions to investors, if it proved that they could in fact earn that much more revenue.

I think you'll find the reality is the Govt realises it is far more cost effective for them to do it. If they had to provide the housing instead of investors, our taxes would have to increase to cover it.

 

[depreciator]

The regional investor scramble was interesting. It must have been 03 when I was in Armidale visiting family and I was having a chat with a local agent. He told me he had recently had a guy from Sydney who bought 12 houses over the phone - sight unseen. I'd say he's lost a bit of money by now. There were lots of places where the prices got pushed up by excited investors and then when the music stopped there was nothing to hold the prices up there. I reckon in many places falls of 30-40% from the peak would have easily happened.
Scott