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Dead Money

Homeowner dreams an aged underclass nightmare

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Homeowner dreams an aged underclass nightmare

The decline in outright owners is not surprising, with the ABS capital city index showing a quadrupling of house prices between 1986 and 2005, and then increasing a further 50 per cent since then.

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The number of these investors has ballooned from 1.3 million at the end of last century to more than 1.8 million in 2010-11, the latest year for which Tax Office statistics are available.

What has also ballooned is the subsidy these taxpayers claim from the public purse: from posting rental profits of $700 million in 1998-99, investors now claim rental losses of almost $8 billion on their income tax returns.

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With more than 90 per cent of this investment going into existing rather than newly built homes, the negative gearing subsidies simply pit cashed-up property investors against prospective first-home buyers for the same stock.

The inevitable result is the prices of those homes rise, and the first-home buyer generally loses out to an investor with more equity, government tax subsidies and a much greater borrowing capacity behind them.

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Thus, over time, under the current tax system, investors will continue to snap up an ever-increasing proportion of properties and more people who would like to own will be left as long-term renters.

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However, Australia's social safety net for the aged is still very much geared to the vast bulk of people being home owners who have paid off their mortgage by the time they retire.

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The Bureau's housing costs report shows those who have paid off their mortgage spend an average of just $40 a week on housing, making it possible to live quite comfortably off the full pension of $366.85 per week for a single or $553.10 for a couple when your super runs out.

Contrast that situation with lifelong renters. If they rent privately they will still be paying an average of $347 per week in rent but, even with rent assistance, they get $465.70 per week for a single or $667.20 for a couple - well over half their pension goes in rent every week.

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Unless Australia wants to return to a situation where many retirees see out their days in poverty, it needs to look seriously about either policies to turn around the downward trend in home ownership (such as by limiting or removing negative gearing), building more social housing, or providing assistance to older Australians that better reflects the benefits they get from any assets they own, including the family home.

Ideally, all should be considered.

The alternative is a situation where an increasing number of landlords continue to expand their property portfolios at the expense of both their tenants and other taxpayers, in the process creating a growing rental underclass destined for poverty in old age.

Okay I'm sorry, next time I'll just quote the whole damn thing. I couldn't pick less quotes than I did - so much truth in one article!

Dead Money

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