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The Claw

Negative Gearing Exposed

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Negative Gearing Exposed

In a previous post, Blowing Bubbles, I contended that Australia’s housing bubble has been caused, to a large extent, by investors piling into housing on the back of overly generous tax concessions.

Given the interplay between investment housing and rental availability and affordability, I thought a detailed examination was warranted of the merits of investment property tax concessions, most notably negative gearing.

While it is clearly the case that Australia’s taxation system has artificially increased the demand for housing, thereby putting upward pressure on house prices, the proponents of these tax concessions contend that any tightening of existing tax rules would significantly reduce housing supply and increase rental costs. To quote the Minister for Housing (Unaffordability), Tanya Plibersek, on this matter:

“…any change in negative gearing would be a disaster for rental availability in this country….If we changed negative gearing we would see disastrous effects for renters in Australia.”

So is the Minister correct? Would changes to negative gearing reduce rental supply and affordability? Does negative gearing and its partner in crime, the 1999 halving of the capital gains tax (CGT) rate, increase the housing stock and reduce rents? Does society benefit from these tax concessions, despite their significant cost to Government revenue and their artificial stimulus to house prices?

Before we examine some of these issues, let’s first review some history.

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Canada has the same NG and CGT rules and they are in Bubblicious territory in some of their major cities (Vancouver, Calgary, Edmonton, Toronto, Halifax).

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yes, i was very dissapinte3d with the reults of the henry tax review and no destruction of negative4 gearing,. basically its a subsidy for rich guys to buy houses and poor people to only afford rent. surely the 1st home is the goal of tax incentives and not second and third houses.

i wonder how many houses the average politician owns on their $100k a year incomes and how many their tewnnants own on their $30k incomes? and how much tax incentives the 100k polly gets to be a landlord that could easily be put to use on well lowering the overall tax bill of all australians.

i wont say incentivise poorer people buying their 1st house because we all know the 1st home buyers grant just seemed ot boost prices. making an incentive for rich people to own multiple go aaway would actually cause an over supply of hgouses on the market , as they rush to dump them. thats better than giving poor poeple more money to bid up prices in my book.

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Finance Minister, Lindsay Tanner, said as much in a recent interview on Lateline:
" The key reason why governments of both persuasions have not interfered with negative gearing is of course that that any dramatic change in the overall investment framework could lead to a stampede of people out of property, which could lead therefore to dramatic drops in prices which of course you’re seeing in other economies around the world and you see the economic devastation that flows from that."

So, despite the Government and many mainstream economists arguing that Australia's high house prices have been caused by a 'lack of supply' (housing shortages), the truth is that prices have risen largely because of speculation from housing investors combined with easy credit from Australia's lenders.

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but housing policy shouldnt be about keeping prices ever going up, it should be about people being able to own their 1st house.

guess these knob gobblers lost sight of WTF they're there for.

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Fantastic article.

While I believe it is legitimate arguement to be able to claim expenses against income for any investment/business including property, the arguement used that PI provide some social service by providing rental properties (add to supply) that would otherwise have to be provided by govnuts has clearly been debunk with the chart below.

On this basis, I think it is only fair that the govnuts put in place a Super Loss Tax on IP's of 40%. Something along the line of the greater the losses the less the PI's can claim and/or the 50% CG deduction only applies to new properties.

ScreenHunter_05+Jun.+13+22.41.gif

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i wont say incentivise poorer people buying their 1st house because we all know the 1st home buyers grant just seemed ot boost prices. making an incentive for rich people to own multiple go aaway would actually cause an over supply of hgouses on the market , as they rush to dump them. thats better than giving poor poeple more money to bid up prices in my book.

This could be achieved easily by limiting NG to the first $100,000 of your PPOR loan only, kind of like the MIRAS in the UK pre-2000 which gave a flat-rate tax rebate but only on the first 30K of the PPOR loan. This would avoid the inherent flaws in the FHOG which pushes up prices, but at current mortgage interest rates amounts to the same value.

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You should only be able to negative gear against income from the property, period. Same as business expenses are only claimable against business income.

This would be such a disincentive ... property would suddenly stop being a tax minimisation strategy recommended by every accountant.

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Great News! I mean about the Government's and why they will not touch the N.G.

Those who wan't will just have to wait despite whoever is in Government!

Maybe, more reason not to vote for the Majors and vote for someone else like an independent or the old Donkey vote! rolleyes.gif

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This could be achieved easily by limiting NG to the first $100,000 of your PPOR loan only, kind of like the MIRAS in the UK pre-2000 which gave a flat-rate tax rebate but only on the first 30K of the PPOR loan. This would avoid the inherent flaws in the FHOG which pushes up prices, but at current mortgage interest rates amounts to the same value.

I am bearish but any measure that allows you more affordability will only push house prices up all things being equal?

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I've gotten two letters through my mailbox in the last two days. One asking me if I wanted to sell as the agent had "people" who wanted to buy my joint (a classic method of drumming up listings as owners think "Hmm free valuation" )

One more today was again from Ray White asking if I had considered using the equity (maaaaaaaaaaaaaaaaaaaaaaaaaate)* in my home to invest in property. (This one is a drumming up business tactic. Why now I wonder? ) In the last seven years I've lived here I've never had one of these before.

It's either business is slowing down or Ray just wants to see me do well. ^_^

I'll find out more tomorrow at the Molonglo auctions.

The staringclown probability index of an imminent crash will from now on be measured by the amount of 'a's I use spell (equity) maaaaaaaaaaaaaaaaaaaaaaaaaaaaaate!

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I had a tradie who fixed my water heater ask me if I was wanting to sell. He didn't even know if I owned the place.

A place down the street was bought by a developer, knocked down and now a year later still sits as a vacant lot. A developer very nearby has had his place on the market (online) for just under a year.

I don't know how much money or patience small developers have, but a year is a fair bit of time in this day and age.

I wish the betting houses would allow a wager on negative gearing (property) being around in the future. Odds for 1, 5, 10, 20 years. I'd get in on that kind of action!

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Macbank just bought Rismark to the value of 53%*. Now its MacB, Bendigo, LJCB and Adelaide.

If you think that a "Shared Equity" scheme is a Ponzi that will implode with leverage on a major correction you know what and who to short.

http://www.efm.info/

* http://www.theaustralian.com.au/business/city-beat/macquarie-buys-53pc-of-real-estate-group-rismark-international/story-fn4xq4cj-1225881386104

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I had a tradie who fixed my water heater ask me if I was wanting to sell. He didn't even know if I owned the place.

A place down the street was bought by a developer, knocked down and now a year later still sits as a vacant lot. A developer very nearby has had his place on the market (online) for just under a year.

I don't know how much money or patience small developers have, but a year is a fair bit of time in this day and age.

I wish the betting houses would allow a wager on negative gearing (property) being around in the future. Odds for 1, 5, 10, 20 years. I'd get in on that kind of action!

It had occurred to me that I could phone the agent a sell the joint regardless of whether I own it or not. Procuring copies of title deeds etc in the end didn't seem practical. Plus I'm not sure I could credibly impersonate a middle aged gym instructor. (My LL) Still with advances in plastic surgery I could do well within a couple years.

I read an article recently about whether the govt can keep on ignoring the needs of the growing number of constituents that don't own property. The article claimed that they can't. I hope they're right.

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It had occurred to me that I could phone the agent a sell the joint regardless of whether I own it or not.

Noone asks you for ID to sell or buy. We subdivided our block and at no point in the process did anyone actually check that we were who we said we were.

Its only the bank that asks you for ID to open a loan.

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Noone asks you for ID to sell or buy. We subdivided our block and at no point in the process did anyone actually check that we were who we said we were.

Its only the bank that asks you for ID to open a loan.

Unfortunately, the charge of impersonating a homeowner carries a severe penalty. A bit like impersonating an officer in the services.

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Unfortunately, the charge of impersonating a homeowner carries a severe penalty. A bit like impersonating an officer in the services.

tell me about it. i was walking around being all smug, belittling people and offering dubious financial advice to total strangers the other day and got hit with a $250 on the spot fine from a cop who knew for a fact that i was merely a renter. dammit.

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tell me about it. i was walking around being all smug, belittling people and offering dubious financial advice to total strangers the other day and got hit with a $250 on the spot fine from a cop who knew for a fact that i was merely a renter. dammit.

LOL

Cop: Well, well... Looks like we got ourselves a renter... Empty those pockets mister... Oh, they are empty.

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I am bearish but any measure that allows you more affordability will only push house prices up all things being equal?

As an additional measure introduced now, yes, but I meant abolish NG on IPs and replace the $7000 FHOG with a tax rebate on a PPOR loan (first $100,000 at current mortgage interest rate of 7%). This would stop a PPOR being turned into an IP because you would lose the rebate, and hinder the speed at which 'portfolios' could be built up using PPOR equity.

MIRAS on my first flat was worth a cool £18 per month! It might have pushed up the price of my PPOR from £34,982 to £35,000, I don't know. :)

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