There’s a lot of belly-aching around affordability and home ownership rates at the moment. But what most people forget is the role investors play in the mix, and what most people overlook is that pushing up ownership rates pushes out investors.
When it comes to statistics, perspective matters.
Take the statement “milk is 96% fat free”.
Compare that with “milk is 4% fat.”
Exactly the same statistic. Exactly the same fact. But a huge difference of interpretation.
It’s the same story with the ‘troubling’ affordability and home-ownership statistics.
Take this one. In 1994, 71% of Australian owned or were paying off their home. 18% rented.
Fast forward to 2012, and home ownership has fallen to 67%, and 25% of the population were trapped in a rental trap.
Isn’t it terrible? Fewer Aussies have access to the great Australian dream (though really, I don’t think we can claim much ownership over that one – the great Australian dream is also shared by Americans, Canadians, Europeans and Asians. Perhaps there are remote African tribes that don’t dream of owning homes…)
But fewer Aussies own houses, and more of us are caught in rental traps. Somebody should do something about that. Won’t somebody think of the children?
But let me tell the exact same story in a different way.
Between 1994 and 2012, many Australian families – many of them struggling to get by – achieved greater financial security through property investing. They created income streams for themselves. Some created successful portfolios.
Some did so well that they dropped out of wage-slavery for good. Some even went on to write blogs for property investors because they like the sound of their own inner-monologue.
As a result of more ordinary Aussies participating in this particular asset class, the number of investment properties across Australia rose from 18 to 25%. Property, as an investment class, began to mature.
Ok, I’m playing it up to be provocative, but you get my point. It’s the forgotten side of the coin when we’re talking about home-ownership rates.
If you think that home-ownership rates are too low, then you must believe that home-investorship is too high. And if you’re arguing for policies that increase home-ownership, then you must be arguing for policies that push investors out of the market.
Most people you hear complaining about ownership rates seem to ignore this.
It’s like people who argue for more public spending, but against more tax. You can’t have both.
But let’s imagine we’re comfortable with pushing investors out of the market. What then is the optimal ownership rate? I don’t think anyone is opposed to the concept of rental properties as such, so what’s the optimal ownership rate?
Presumably then it’s somewhere between 67 and 100%, but where? 71? 92?
Do I have any takers on 92?
There’s no theory I’ve seen about the optimal ownership rate, either from an economic or social perspective.
And a 25% rental rate isn’t that high on a global scale. Many cities in Europe have rental rates above 75%. And I’m not talking outer-Ukraine Europe, I’m talking heart of the Eurozone engine room. In Berlin, 90% of households rent. In Hamburg it’s 80%.
Massive, right?
Is it too high? Well, maybe, but it doesn’t seem to faze the Germans too much.
Because people, expressed through that collective action force called ‘the market’, made it that way. Home ownership rates in Australia aren’t 67% because the government decreed that they should be. It’s just the way it turned out.
So if you’ve got a problem with 67%, then you’ve also got a problem with leaving that result up to the market.
Now I’ll be the first to admit that the market often gets it wrong. Left to itself, it can often create outcomes that are socially sub-optimal. But if you want to tinker with market outcomes, you need to know what you’re doing.
For example, if you think ownership rates are too low, where’s your leverage point? Do we need to do more to encourage home ownership? How? Legislate that everyone under 30 has a separate account to save for a deposit? A house-inspection for the dole scheme?
We’ve had first home owner grants and all that, but they only serve to push prices up further.
So maybe it’s a problem with prices? Do we need to stop prices rising? But young people want to “get on to the property ladder” precisely because there is a property ladder – because prices go up. If prices were flat, I think we’d see the ‘great Australian dream’ for the purely rational calculation that it is – and a lot less angst about ownership rates.
So then maybe we need to discourage investors – is that our leverage point? Remove negative gearing? Tax rental income at a higher rate? Shut down self-obsessed bloggers with rambling blogs? Push every investor out of property and back on to the share market roller-coaster?
I don’t have a strong view on ownership rates, but I think the rise of the property investor over the past 20 years is a good thing. I’ve seen it liberate a lot of people from the rat race. I’ve seen it help a lot of people take control of their financial futures.
And I’ve seen the economic, social and political freedom that comes with financial security. It’s no bad thing.
Maybe it’s just a glass half empty / glass half full kind of thing. But from where I sit, more and more Aussies are using property to buy themselves financial freedom, and I reckon it’s awesome.
But as I said, statistics are all about perspective.
Bullshit.
There is nothing free market about negative gearing policy.
No, Ashley, nothing at all…. so the Guv’mint should butt out and let free market forces do the job they will inevitably do: provide affordable housing for both renters and owners.
What happens when the government puts up the first home owner grant? the price of a house goes up by the same amount…. who benefits? the seller & the agent….
Ashley, only you blokes know all about happy pills, eh? Also only a moron doesn’t know that the builder or developer makes all the money from first home owner grants. Sarcasm is the lowest form of shit, so if you can’t take it, don’t give it now piss off.
Haha I like your frankness, and agree entirely.
Sorry Jon but this article just sounds like a whinge from someone who wants their cake and to eat it too.
Allowing people to escape the rat race is great, but at what cost? Do others suffer as a result? When you are effectively subsidised to own investment property, someone else loses out. I don’t see that as a good thing. Obviously there’s more to it than that, but you get the point.
It seems to me that the way to wealth these days is tax avoidance. And given Australia’s apparent budget ‘crisis’, I can hardly see how it’s a good thing for the country. Wealth should come from ideas and discoveries that better the life of people. Greed should not be rewarded.
Dsal,
your mentality that some people having more means others missing out, is something to really look at. Why not being able to have your cake and eat it too, what is wrong with that?
If you make more, you pay more tax, what is wrong with that?
People having more money CREATES a better life for people and for every one
else around them, in numerous ways.
Just because a person has money, does not mean that they are greedy. They have a greater ability to help others, having more time, knowledge, opportunities, being a great example of what is possible, and so much more.
l find people that are not happy with the amount of money they make, are usually the ones Whinging and not people like Jon, who has the time, and generously gives us food for thought and new ideas if we are open to them.
Helena, if you create wealth via a productive asset it can create jobs, innovation, and true wealth. Unfortunately property is a non productive asset and contributes nothing to society… in fact it does the opposite of contribute… Dsal you are spot on, wealth through property IS at the expense of others…
http://www.macrobusiness.com.au/2014/01/australia-world-number-one-in-tax-rent-seeking/
Ashley,
But you are free to use negative gearing just like anyone else. Want to see your rent go up 30%?Then abolish negative gearing.
If you think landlords control the price people pay to rent a property then you are sorely mistaken… haha maybe you should stick to cash as an investment?
Your 1st point – is too true… haha…
Your 2nd point – not so… While a landlord may wish to increase the rental to cover the loss, there’ll come a tipping point where renters find it cost effective to buy instead.
Whatever you do I’m with Jon in that its all about perspective. In this case managing expectation of a wasteful, consumer generation, who want their cake and eat it too.
Plenty of cheap affordable properties for sale… Oh sorry, What? Not quite up to your standards? Well neither was the first one I bought, but that’s history 😉
Thats awesome Anth, find me a house in Sydney for me, my wife, and my two children within a hr of where we work for under $500,000… LOL
Also I think you have the wrong idea of Gen Y. 😛
Most Gen Y ARE A MOB OF KNOW ALLS WHO CAN’T BE TOLD ANY THING AND THINK THEY KNOW EVERY THING ABOUT EVERY THING. THEY CAN’T LEARN ANY THING BECAUSE THEIR MIND IS FULL OF WHAT THEY ALREADY THINK THEY KNOW. MOST OF THEM WHINGE ABOUT EVERY THING JUST BECAUSE THEY HAVENT GOT ANYTHING. THEIR BEST WAY TO DEFEND THEM SELVES IS TO ATTACK EVERY THING ABOUT EVERY ONE ELSE. BY THE TIME THEY WAKE UP TO A SAYING OF CONFUSCIOUS’, IT WILL BE TOO LATE. “BEST TO KEEP YOUR MOUTH SHUT AND BE THOUGHT AN IDIOT THAN OPEN IT AND BE PROVEN ONE. JUST THOUGHT CAPITALS MIGHT STICK IN YOUR BRAIN.
Ken, that was a mess of poor grammar and ad hominem attacks on younger generations. I’m sure if the younger members of your family where asked about you ‘stubborn’, ‘know it all’ and ‘whinger’ could all be used to describe you.
Its hard for kids these days. In the 80’s you could pick almost about any job save for a few years and then buy a house. These days if you don’t go and work out at the mines you need a good job, a uni degree, and luck.
35% unemployment in people under 25. These are the people you will need to sell your assets to in retirement…. What happens when they don’t have any money… scary stuff
I like reading your viewpoints and agree with a lot of what you say but what I like the most, is your straight talking, which is refreshing in this politically correct bubble we live in now. Keep it up.
You can’t abolish negative gearing without crushing business investment under the same hammer.
Business needs to be able to borrow to expand or upgrade equipment, therefore interest payments need to be deductible. You could allow interest deductions up to the point of offsetting income but no further (ie neutral gearing). That would still allow businesses to borrow to expand because they would expect an increased income from the new plant/equipment. It would mean a temporary slowing in the housing price rise because us “rich buggers” would delay a property purchase until we had a sizeable deposit. It would also mean less investors getting caught out by borrowing too much just before the GFC.
Should be specific to residential property, not business.
This policy encourages property speculation which in turn drives up price, which causes more speculation, then an increase in price…. and so on and so on… until pop
Sorry, but I consider that investing IS a business. Or are you in favour of a different tax law for business vs individuals? That will lead to even more inequality.
I agree negative gearing encourages speculation. ((The property collapse of 2007 in the US was started years earlier when Americans were allowed to claim a deduction for interest on their own home.)) The problem is how do you stop the speculation without discouraging investment.
Should I point out here that I’m arguing against my own best interest? I make a tidy tax saving from negative gearing myself.
My view is that something that is a basic human right should be protected from market manipulation.
Maybe a solution would be to offer a lumpsum to be taken from the original amount for a period of 5 years after which the home is to be sold. Breaking the 5 years would mean losing a portion of the original lump sum. Or even limiting negative gearing to new properties only for a period of 5 years.
Did you know that negative gearing is only about paying out $1 to save 10cents in tax on investment housing. Very intelligent.
Ashley, Doesn’t negative gearing just mean the guy that takes the risk gets a tax deduction for loan interest paid? i.e. Exactly the same as every other business. So are you sure B……t is appropriate? If I have it wrong please tell me!! I believe we haven’t a free market because of incredibly over regulation mainly by Councils, Planners etc that continue to tighten controls so they can score bribes & kickbacks on anything that is approved
“Doesn’t negative gearing just mean the guy that takes the risk gets a tax deduction for loan interest paid? i.e. Exactly the same as every other business.”
This is using the premise that I think a property should be used for investment.
For every property purchased for investment a person who wants to buy to live in will miss out.
This whole system was implemented to increase dwellings so that eventually we would have more homes for people to purchase for their first home.
Instead we have had investors buying properties at over 9 times the rate of first home buyers for almost 15 years…
Does anyone know what a pyramid scheme looks like? …
I simply cannot see the argument for abolishing negative gearing.
In a simplistic view, it is easy to say that market sets rent levels, not investors, however, the flow on effect of fewer rental properties would then be a supply and demand issue and the result is inevitable.
FOHG are ridiculous, as they skew prices upward in a small portion of the market.
The biggest question is, ‘is home ownership still the great Aussie dream for young people?’ I actually think that it is having all the gadgets, holidays and extra disposable income that comes when renting that is the goal of many.
If home ownership is in fact the great Aussie dream, then the path towards it should be taught and encouraged, rather than false promises of grants, or subsidies.
The single biggest hurdle for a young person to save for a home, is other crushing debt, that gets taken on in form of car loans and credit cards.
I was fortunate to be taught that for non essentials ‘if you cant pay cash, then you cant have it’.
As a consequence, I had a $1000 motorbike as my transport for 6 years. At the same time I built a slowly increasing share portfolio, that eventually allowed me to buy a house, because I didn’t have a 20k car loan like most of my friends.
Financial education is the key to keeping the ‘dream alive’, not false entitlements.
the scrapping of the first homebuyers savings scheme is stupid, this should have been expanded to include education, and bonuses for completing financial education modules. Scrap the FHOG to help pay for it.
I remember my parents telling me they saved like crazy for 4 years in order to buy their first house. They both worked.
I cant see why a person cant decide when they are 20, that they want to buy a house, and save like crazy for 5 years, could not achieve same result.
You may have to forgo a nice car, or overseas trips, or only have one device, choose Ipad or Iphone, but don’t have both.
I don’t think the size of sacrifice needed today, is any greater than that of 30 years ago, its just the expectation that has changed.
Creating disincentives for investing will inevitably cause higher rents, and poorer access to what is a perfect asset class for investing for average people, meaning that renters will have less disposable income, and fewer mum and dad investors will reach the ultimate goal of financial freedom.
John is all over it, and should be congratulated for the work he does in educating and helping people towards those goals…..
“the flow on effect of fewer rental properties would then be a supply and demand issue and the result is inevitable.”
This is not an issue, 1 investor leaving the market means 1 new house available for someone looking for a home to buy to live in.
“If home ownership is in fact the great Aussie dream, then the path towards it should be taught and encouraged, rather than false promises of grants, or subsidies.”
The good news is they are bringing out 40 year mortgages, YAY!
“Creating disincentives for investing will inevitably cause higher rents, and poorer access to what is a perfect asset class for investing for average people, meaning that renters will have less disposable income, and fewer mum and dad investors will reach the ultimate goal of financial freedom.”
The bad news is there is more debt in the world than money, someones financial freedom is an someone elses burden.
1 investor leaving market does not mean 1 1st homebuyer entering.. Unless you predict a massive price crash, since so called affordability is biggest barrier.
Prices could only fall a finite amount, since cost of building a new house must first be met.
Since Australian banks are back bone of asx and all super funds, would crushing their number 1 security, domestic property be a smart move for the sake of supposed improved affordability?
Since the effects of negative gearing have taken 30 years to create the so called problem, then at least half that time would be needed to unwind them. Anything quicker than that would be catastrophic .
A simpler solution is to give same incentives to savers as investors.
You say there is too much debt in world then why not encourage saving and wealth creation, rather than removing a fundamental wrath creation tool from entire society.
“1 investor leaving market does not mean 1 1st homebuyer entering.. Unless you predict a massive price crash, since so called affordability is biggest barrier.”
This would cause a correction not a crash, and yes, an investor leaving the market means a 1st homebuyer entering.
“Since the effects of negative gearing have taken 30 years to create the so called problem, then at least half that time would be needed to unwind them. Anything quicker than that would be catastrophic .”
As long as the government doesnt intervene the correction would be done and finished within a year to 2 years..
“You say there is too much debt in world then why not encourage saving and wealth creation, rather than removing a fundamental wrath creation tool from entire society.”
The world is run by debt… its modern day slavery… that will never happen without some sort of revolution.
If investors only pay tax on 50% of capital gains, they should only be able to claim 50% of their losses. Otherwise they should pay tax on 100% of capital gains, indexed to inflation.
First home owners grant distorted the market and artificially inflated prices. It put the goal of getting first home even further out of reach. Most landlords are not particularly wealthy and would not invest in the housing market whilst the gap between house price cost (ie interest) and rental income is so large. Negative gearing only applies if making a loss. Its not designed to enrich the wealthy. I would rather keep my hard earned dollars than spend them just to get a proportion of them back in tax! Abolition of negative gearing will make rental costs much higher exacerbating the disadvantage of those renters looking to save a deposit for a home. I agree that for many young people they have made a decision to spend now – travel, consumer goods, expensive lifestyle choices. That mostly accounts for the relatively small fall in home ownership. ALso, many of the current home seekers are not prepared to compromise on location or product to get into the market. Most people of previous generations got into the market where they could afford it and worked to upgrade when they were more financially able.
Remember the vendor tax? Thousands of investors fled to Qld and Vic to escape it. The government realised the error of their ways and it was gone overnight. So was the moey they took with them, invested in other states……..
I get the impression that it’s an ‘us and them’ mentality when it comes to landlords and potential first homebuyers. If I list my home for sale, I don’t know or care if the buyer has a FHOG or not. The price is still the same. So I don’t believe that the grants pushed up the price of homes. I do however believe that FHOG allowed the new buyers to offer more if there was a bidding war.
Ashley, you say that property is a non productive asset and contributes nothing to society…….
Well what do you think would happen if the landlords of Australia kicked out all their tenants and decided to sell to family members instead? Where would these tenants go? Good landlords (such as myself) do a lot for society. I could go on the dole and put my hand up for a housing commission home and expect people to look after me from go to whoa!
Negative gearing is often the only benefit many landlords get in a market of large mortgages, (admittedly very low interest rates) and all the risks involved with rental properties. My properties are neutrally geared for the most part, so I am doing it for nothing really.
With capital growth (and capital gains tax) to look forward to, if I sell, I don’t even get the negative gearing since I’m retired. I just want to be independent in my old age, since there won’t be any pension to speak of when I become eligible for it.
If you got rid of negative gearing in an effort to get investors to sell out of the market this would cause a flood of existing properties onto the market. Who would buy them? Certainly not the carpenter who’s job it was to build new houses, or the truck driver who delivered concrete to new housing estates or the office staff at the companies who ran those projects, or the agents and staff who sold those projects.
What about those thousands of people who work that sector?
With no jobs housing affordability isn’t their main concern.
You can’t just wipe out an entire industry just because you don’t want to travel more than an hour to work.
I travel 1 1/4 hr to work and am not living in my dream home. Try a unit or an apartment, if you won’t compromise on time to travel.
Stop complaining and start doing
Best argument so far. Although we could always bring in more chinese millionaires?
Ashley, did you seriously not realise this before your rant? If so, you show as much forethought as the Labor federal government. As to promoting saving, I suspect you are then unaware that for every dollar deposited the banks are able to lend nine dollars which don’t exist except on paper (or on computer balance sheets). This money they lend becomes a real debt for the borrower, whether they be property investors, first homeowners, holiday makers, new car buyers, etc which will follow them forever. Yet the bank, if it gets it all wrong, is underwritten by the government. And if they get it really wrong they now have permission to take the money they need to survive from the savings accounts of their clients (such as happened in Cyprus).
Property investors are generally hard working people who are trying to keep some of their earnings for retirement. As Jon has explained, them making money does not make you poorer.
Better you vent your concern at the finance industry with its falsehood, trickery and massive payments, often trailing, for many unproductive persons. They are the ones manufacturing the debt which enslaves us all.
It’s a game and the rules are not fair or consistent. Consider what would happen if instead of abolishing negative gearing, the government reduced the gearing available to banks on virtual money by a factor of two. ie If like us they had to provide 20% equity for their loans to avoid insurance and get the best rates. That should drop your house prices. But the other effects had better be well considered first!
Hi Simon, Yes I realised there would be loss of jobs in the housing industry but as I was saying before, although housing is included in GDP it is still a non productive asset. There are better and more productive ways to keep people employed that doesnt involve property speculation and driving up the price of land.
The renovator would definitely buy up these houses if they are genuine renovators at a genuine renovation price. This is the best and quickest way to make a bit of money. A good life experience too.
Ontheway, i totally agree with your thoughts, why is so much energy wasted in bashing those who look to get ahead by whatever means they can. If the ‘basher’s’ started spending more time and energy looking at their own lives and ways to get ahead for themselves, they might realise there are plenty of ways, albeit there is a risk and with that risk comes reward, or failure depending on many things, some unforseen…..
We know that socialist and communist societies do not work as we do not live in an ideal world, so we exist under the luxury of a society which allows for free thinking and doing, investment or otherwise and we should be grateful for the opportunity…..as we all generally start with nothing we all have the same opportunity, so the playing field is level here, as the rules are the same for all, so let’s do what we choose to do and play nicely in the sand pit together….. If you are happy with your life and where you are going that’s fine by me….enjoy it and leave me to make the best of my future…
Negative gearing was designed by the government of the day as the cheapest way to support public housing.
Keatings Labor withdrew the negative gearing policy only to find investors leave the market and create a massive homeless society, hence Labor reintroduced it to fix the homelessness & public housing problem.
If you withdraw negative gearing, then taxes will have to be raised to purchase and maintain public housing.
Negative gearing is the cheapest form of public housing for any government, just as Jon has stated in his current blog, it depends on which way you want to look at it.
If you think of it as a tax concession for the rich, think of it this way, the government can supply available housing to its people by getting mum & dads to spend a dollar and they will give them .30c back. (in general)
Love your blogs Jon & the discussions it creates.
Over the last seventeen years, negative gearing has cost taxpayers an inflation-adjusted $33.5 billion (2012 dollars). ( https://theconversation.com/its-time-to-abolish-negative-gearing-9879 )
That should cover the public housing….
sorry Ashley but unfortunately it doesn’t,
if $33bn was spent, then the cost to the people supplying those houses was in the ball park of $100bn
If you think negative gearing should be abolished then you need to do some homework to find out where it came from and why it is there.
without it many families would be homeless due to the lack of availability of houses for them to move into.
Hi Jon,
Love your posts and the discussion they offer. As someone who has worked full time in the one industry since I was sixteen years old and worked hard for nearly thirty years to get to a high level in that industry. As someone who rarely takes a sick day, averaging less than one day per year that I have worked. As someone who receives no family payments, pays top health insurance, pays income protection insurance, who pays top dollar for medications, electricity, water, and all the other things that so many want for free. As a member of the top tax bracket for a number of years who has a pension from half of my working life which is unfunded by the government but is locked away earning pitiful CPI until age 60, no wait 65, no wait….
I love when Ashley and the likes complain about how the evil property investors make it so hard for the others. As many have explained, nothing stops Ashley from investing in property, shares, or any other business and claiming costs as a deduction. Nothing stops Ashley from saving hard, regardless of income, to purchase property. There are many ways to invest, and many ways to invest in property. Some of these can be done for very little outlay but will take some effort to research and then a leap of faith to commit to.
Does Ashley realise just how much work, responsibility and risk is involved in property investment? That most property owners actually lose money from the experience? That the government couldn’t afford it if property investors disappeared? Ashley probably thinks private schools should get no funding either, or private patients in hospitals. Ashley probably thinks all property investors are wealthy, too! What a laugh!
One thing which is obvious is that many Australians do not understand how poorly “the system” is set up to provide them with a comfortable retirement. If most people look at how much tax they will pay throughout their lives and then subtract the government benefits and assistance they expect to receive in their working years they should then see why it is unlikely that much is left to support their retirement when they stop working. And that is those who are willing and able to work in their working years. Government debt is a huge issue and we should all be concerned for our future generations that it has recently been allowed to be so wantonly increased. Also, financial education should be a much bigger part of primary and especially high school education.
I have elected to invest to provide for my own retirement income. Since an epiphany in my mid-thirties when I was still living pay to pay on an income similar to today’s, I have given up significant income and luxuries in an effort to invest for my future. I have lost money on shares and businesses and some of my properties have lost me money which I am unlikely to recover. However, I am learning as I go. I read blogs, books and email newsletters. I attend seminars and information sessions on superannuation, property and other investments. In other words, I am WORKING to provide myself an income from my investments. Some of my investments are doing well and overall, my investment experience is working towards my goal.
I wish others would stop complaining about the workers who are doing more work to try to keep some of the reward which they largely have taken from them anyway. Stop complaining, start doing and you’ll see it’s not as unfair as you say!
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So true. Property Investing is a business and should not be subject to Capital Gains Tax at all. Property Investors should receive all the ‘breaks’ that small business owners get.
If you do invest in property, you’d better have some courage, nerves to deal with tenants, managing agents, continually rising costs, complying with all legislation (some is extreme), getting calls at odd hour, weekends, holiday times + much more. You also have to deal with banks, manage your finances, pay higher accountancy fees due to all the extra work involved. Let’s face it, you need a reward for this or you would just give the whole thing away. Most property investors do and I bet many of the complainers would not last very long.
Property investing is the business of supplying housing and accomodation to people and because the Government know we do a job they don’t want to do. The so called “breaks” exist to encourage you to take on risk you just would not take otherwise. Simple.
The great Australian dream is nothing but a great marketing tool. Spot on Simon Robert I too have owned investment properties and have learnt a lot not just about property investing. But the best teachers have been the tenants themselves, I lived next to one of my properties. What they can tell you about pulling the wool over centre links eyes is really something else. One comment from centre link to a tenant was to sell his house put the money into super and get on the state housing que, With that in mind and the governments idea off means testing your home would it not be sensible to sell your home to your kids who would negative gear it enabling parents to claim some assistance from the system. Might make they think twice about this plan.
Eric, I should point out that we do get a much better interest rate on loans compared to small business owners.
I did a property inspection today and the clothes line was in the corner of the rear garden, propped up against a fence, in pieces. When I asked what happened, I heard a story that the hoist broke (about a year or more ago) and the previous agents didn’t inform me. Over time it fell over under the weight of the rest of it.
The agent said I could go to a tribunal but if it’s over five years old, then we wouldn’t have any recall. Now my 24 year single daughter has to pay for a new one out of her wages.
Any means testing of the family home would be so unfair to Sydneysiders, as the property is so much more expensive here!
> we do get a much better interest rate on loans compared to small business owners
That is due to security, not the purpose of the loan. If a small business owner was to mortgage his home for his business loan, he’d get the same rate as a property investor.
Greg, If that is the case, then small business owners are unaware of this fact. as I have heard many (on the radio) complain about this problem. What if the small business owner used all the equity in his home to get a loan for the start up capital? The only option then is a higher interest additional loan.
Ashley, looks like I hit the nail on the head. You in particular got what you deserved from whinging.
Still not making sense ken. Take your happy pills ok?
Well, about those ‘remote’ African tribes, may we note here that among many of them you are required to build your own hut by the time you are 18. Let that sink in your disrespectful mind. Those same African tribes own their dwellings however simple the dwellings may be. They don’t pay through their lives for a roof the way we do and sacrifice everything at the alter of home ownership only to soon discover that everything is gone while we were chasing a house, a shell, an empty roof. You see we have feitishized house, property and roof over head. A whole cult has been formed around this obsession with an over-prized commodity that now serves economy rather than lives. Lives are sacrificed around those little gods of wishful property-protected imagination. I have a house, therefore I am. I have property, therefore I am ‘rich’. Even if I am childless old miserable and lonely because I have been working my arse off to own a house and be rich and dead with nothing left behind but…property…property…property…without prosperity…and not much posterity…
It’s all about balance.
I don’t tell people they have to invest in property. In fact I went to a property investor meeting the other night and advised someone who was considering property investing that they shouldn’t. They were only considering it because they had invested in shares and thought they should diversify even though they knew very little about property investing and it scared them. That person would likely be silly to invest in property for both financial and mental health reasons.
You don’t have to have children, either. But you can’t get to old age and then blame others for you not having made the required efforts and sacrifices to either have a family, have investment income, have had life experiences, have made a worthwhile contribution to society or humanity, etc. Those who fail to plan, plan to fail. If you want to eat all of your cake now, don’t complain when someone else has cake left over in years time because they planned ahead and you only have crumbs.
Oh, and 18 year olds in Australia can get into a house. It may not be the house of their dreams but it won’t be a straw hut with a mud floor. And if they follow the advice of that famous small novel “The Richest Man In Babylon” and invest 10% of whatever income they have, in a few years they will be amazed at what they can achieve in this country of opportunity. In fact, it is precisely that fact which means that our high house prices ARE sustainable. Because so many of the 6 Billion or so people in the world would love to live here!
EVERY state in Australia has suburbs where the median price is UNDER $100,000.I recently did an application for one of my rental properties and the applicant has been working in the mining industry for three years. His average weekly pay is $3,050 per week.He wants to rent this property because it has sufficient shedding to ” House all my toys ” His bank account shows a balance of less than $2,000. I find it difficult to feel any sympathy for this young man having to pay the rent this property commands.
So the answer is to abolish negative gearing – this saves the government money – wrong on many fronts.
If the private sector leaves the scene then the government has to take up the slack. Guess how efficient this is going to be. My guess is that the government tender process and the thousands that administer it will push up the cost of housing. Think also about all of the loans which are retires as a result of the private sector cashing in. What happens to the tax that the lenders pay to the government as a result of them making a profit – more strain on the budget.
No – investors are not saints or saviours of the country – they are merely a part of society working within a legal framework which was designed to rebalance the wealth of the nation but failing at times. Tinker all you like but in the end there will always be those who are willing to put I the extra yard and it is proper that they be fully rewarded. The opportunity exists for all.
Negative gearing was never a subsidy from the government. A subsidy is like a grant to prop up a business which otherwise it will not continue. Negative gearing on the other hand is a legitimate result of tax deduction that is properly considered so that tax is morally taken from total real profit. This moral basis is available to all tax entities including corporations, partners, trusts, organisations, etc. Every tax entity is entitled to aggregate all its loses and profits to work out its real profit so that the proper tax is taken out. Imagine if only profitable projects are included and loses are ignored! That tax entity would be treated more harshly in this country than in many other countries. The tax entity would be asked to bear its loses but to pay taxes on the projects which are profitable. Which company is subject to that? It is telling that the notion of removing negative gearing is only applied to individuals and strikes at the heart of individual independence, reward and self-reliance. What does it tell you about the origin of this notion to remove negative gearing from individuals investing in residential houses, but not collective tax entities, such as cooperatives and companies?
You know the negative gearing does not harm the price of housing. The real culprits are developers, marketeers and all those who sell that sub standard housing at over market prices. This is the real deception and damage in our economy and the power of greed in action.
Wealth seminars are about them getting wealthy – not you the investor. If you can hold onto their type of property for long enough for it to actually get you back to break even you are fortunate. But how many held onto investments properties for years because they would lose too much money if they sold now.
This is sick industry build on many many lies. The promise of a certain amount of rent, the promise of growth each year, the promise of quality home that you sell for a profit in a few short years and on and on. The reality is nothing like that. Instead its all based on small cheap crap housing built for “Les Miserables”.
I respect a good builder who builds a good home that a family can actually live in without it falling apart in a few years. And I don’t mind paying him his honest price for a job well done – the purchase is on market price and a win-win for both of us. And if I decide to negative gear – it really works. And if I decide to sell, I can and will make a capital gain on this property – starting now. And if I rent it – the tenants love it and pay a decent return (rent). And if I move into this house and stay put until retirement this house will serve me and my family well.
This is the real Australian dream – and one that we are losing because it has been twisted and stolen by the carpetbaggers.
So well said Jon. This is a great article.
I think if you really wanted to own a home you would make it happen, work 2 jobs and cut back on the Unnecessary spending. If you couldn’t afford the area your living in than invest elsewhere. It really isn’t that hard, it’s frustrating when people complain that Housing is unaffordable but go on European vacations instead saving of house deposits. I think there will always be a certain percentage of people who feel like they shouldn’t have to work their butt off to save a deposit or don’t see the value in buying a home and are happy to rent and live off their pension when they age. They will regret that later but hey for them it’s all about: Yolo!
The original idea behind negative gearing was to encourage investment in new production, new businesses, new homes, etc. The problem arises from a two-speed tax regime where we can claim all of the loss now but only pay half of the tax on the final profit. Maybe rather than eliminating negative gearing, the solution is just remove it from individuals speculating on pre-existing properties.
I propose the following:
If the borrowed funds were used to buy a pre-existing asset then any loss gets capitalised. You don’t get to reduce your tax bill this year, it reduces you capital gain when you sell.
This is not going to be a burden on anyone with a neutral or positive geared property, and probably not much of a burden on negative geared, but I think the psychological impact would help prevent “speculative” investing.
Neg gearing makes it easier to invest in a property in the early days, a good thing for anyone purchasing a property, its there for “everyone” to take advantage of. eg I purchased a 2 bed villa in Sydney, lived in it for while i renovated it then rented it out, then rented an older 3 bed house in a nearby street for myself to live in. Then I claimed a bit of neg gearing and depreciation, not much as my income is not very high. (because I’m a lazy bricklayer) property is not such a speculative asset class due to entry exit costs, would take a much smarter person than me to be successful as a short term “speculator” I believe I could have sold that property after 6-7 years? of renting it out with no capital gains tax as it was my place of residence for 1-2 years? however I will probably never sell it as it is to good an asset to sell. Just one example of how I try to do things different to the mainstream.
Love you all.