Sorry, property investors and the Labor Party don't mix.
I’ve held out on weighing into the negative gearing debate so far. But now I’ve finally settled on my position.
Labor can suck a fart.
How did I come to such a rounded and well-reasoned position? Like most “analysts”, I had a coffee and did some big-picture dreaming.
I’ve seen a lot of numbers doing the rounds. Aussie John reckons house prices will fall by 10-20% if Labor’s policy gets up. Bill Moss, the former head of Maquarie Group’s Property Division reckons they would fall 30%, maybe more.
Do I have any takers on 30%?
Let me throw my hat in the ring. I reckon house prices will fall 120% if Labor gets its way. People will be literally paying you to take houses off their hands.
It will be an economic Armageddon.
120% might sound ridiculous, but it’s got as much credibility as 30+%.
The truth is that anyone trying to put a number on these things is dreaming. The property market is just too complex. You can’t isolate what effect any one policy measure will have.
House prices are driven by a whole range of things – it depends on the supply and demand balance, it depends on what foreign buyers are doing, it depends on what’s going on in the economy.
Trying to pick out the effect of a single policy change like negative gearing reform is like trying to find your farts in the synoptic charts on the weather channel.
(Georgia, put that one in the short-list for Jon’s Dazzling Analogy of the Year.)
You just can’t look at these things in isolation.
But that is exactly what Labor wants to do.
They’ve simplified the problem and dumbed-down the prescription.
Negative Gearing must be having some impact on the market. Sure. But I can’t say that I’m totally sure of what it is. Maybe it pushes prices up, maybe it increases supply and pushes prices down. Maybe it does both.
But if you look at the media frenzy that’s developing around this debate, you would think that the sole reason why young people have sell organs to get into the housing market is because their parents have used negative gearing to drive prices out of their reach.
I doubt very much that this is true.
You want to look at why prices are where they are, look at supply and demand. As I’ve said a number of times, we haven’t been building enough houses, mostly because we’re not bringing enough land to market.
So if you want to complain about high prices, have a look at the supply bottle-necks we’ve built into the system.
But Labor’s not going there. No one wants to go there. Supply reform is hard. It involves coordinating the states and the councils. It involves finding ways to work with the Not-In-My-Backyard brigades. It involves taking on the deep-pocket developers and their land banks.
Total nightmare.
And so we get a bit of tinkering with demand. That’s all we ever get. Half-arsed attempts to address affordability like the First Home Buyer Schemes. And all any negative gearing reform will do is have a marginal impact on demand. Maybe it even reduces supply, making things worse, but I don’t expect that effect is huge either.
So my bet is that who ever wins this election, and whatever happens to negative gearing, in three years time people will still be complaining about how expensive houses are and how hard it is to buy a house.
And in that sense, Labor’s policy shows vision – a vision for how to position themselves as the battler’s champion going-forward.
This issue isn’t going away. Excessively high house prices are a problem. It’s hard to run a business when affordable labour can’t afford to live near your office or factory. And there are legitimate questions of equity, when some sections are locked out of home-ownership. The young folks of Australia are peeved now, and their parents soon will be too, when they realise that they need to give their kids a good chunk of their retirement savings to help them get a place of their own.
Housing affordability is a big issue, and its only getting bigger. As such, it’s a vote winner.
So this is Labor’s play. Cry crocodile tears over affordability, paint negative gearing as the nasty villain, and then champion negative gearing reform as its saviour (while studiously avoiding saying or doing anything at all about supply.)
Bulls#!t.
Its cheap and lazy politics.
The danger though is that the property market is complex. And you have negative gearing reform (and all the fear that people are whipping up) coming into effect at the same time as banking credit is getting tighter, Chinese buyers are drying up, and the economy struggles with transition.
It could be the straw that breaks the camels back.
Fear can have a tendency to snowball. House prices can get a run on if they start to slip.
(Though if we do see house prices fall, even 5-10%, I’ll be buying up big.)
I’ll back the property market to weather the storm over the medium term, but in the short run, a lot of ordinary people could get burnt.
And so this is the basis of my argument. If you care about affordability, look at supply. If you’re worried about it as a tax dodge for the well-heeled, have a look at the CGT.
But leave negative gearing alone. It’s not the demon you make it out to be, and now is not the right time to be introducing fear and uncertainty in to the market.
Especially when the only purpose is to score a few political points.
I rest my case.
If you vote Labor and you're a property investor, you're a bloody idiot.
What do you reckon?
Mark Evans says
Interesting interview with Yanis Varoufakis in the Guardian today.
“There’s nothing wrong with investing in building new houses,” he says, “but there’s something profoundly wrong with being subsidised by the taxpayer in order to bid prices up for existing housing stock.
“That is inane and that has to end. It shifts money and savings away from productive investments to fixed assets.”
I have to agree but I’m sure I’m in the minority view subscribing to a property investment blog.
But hey maybe it would be better to get revenue by just jacking up GST. Taking more money away from low income earners who pour all of their dough into the economy probably won’t effect the economy too much.
Hey didn’t only Sydney and Perth house prices drop last time negative gearing was tinkered with during the Keating Govt. Considering that a couple of states are always heading in a downwards direction on the investment clock wouldn’t it be the first time in history that all the states had a 30% reduction in housing prices at the same time. I think you are scaring the children with $100 roast beef meals and tales of Whyalla being wiped off the map with your 120% housing crash.
Jo says
I agree that it is essentially a bad policy that ignores complexity and is a dog whistle to appeal to certain segments of the community. I would prefer they didn’t have that policy.
However, pretty much all of the LIberal Party’s other policies are bad for the investor and almost all Australians. They are largely designed to decrease the wages and/or spending power of the lower waged people, and this will keep rent from rising.
In any case, I wouldn’t sell out my country for a few pieces of silver. I would prefer to keep negative gearing, but if it goes, so be it, it will be factored into my costings when I purchase.
Rudi K says
Jon, I hope many people will see the nonsense in your argument and your call to not vote Labor. It shows such a narrow perspective by focusing on one relatively minor and selfish aspect, not looking at overall policies aimed at more social justice, better education funding (this nations future depends on it), continuation of universal Medicare benefits for all, and many more, particularly a fairer distribution of the tax burden which is now mostly carried by an ever diminishing middle social group. – An opponent to voting LNP might as well argue, in your own narrow fashion, that you should vote for a party that has a leader and Prime Minister and former Bangster hiding his wealth from tax scrutiny and fair taxation in Australia like other favoured corporation buddies. I urge people to have a more discerning look at the various policies of the parties rather than your narrow perspective, Jon. Rudiger
Rudi K says
Typing error: it should read “….that you should Not vote for…”
Tom says
Personally, I suspect that the oversupply of shoe-boxes in the CBDs of our big cities is of far greater consequence to the overall property market, than the cessation of negative gearing deductions for existing properties.
The anticipated glut and accompanying devaluations may prompt single and young working couples to buy their first home in those future slum dwellings, but they should not expect any capital gains there. Still, it would enable them to gain equity instead of paying out dead rent.
There must have been a lot of palm greasing for Councillors to have given the green light to such monstrosities. Those bribes are going to come back and bite them on the derrière.
The sooner we have full transparency, with all payments being made public, the sooner logic will be able to control decision making and level the playing field.
In the meantime, we must all get used to the fact that economies cannot continue to expand indefinitely. Gaia can only supply resources once and future generations have as much right to them as we have; so we must slow down the rate at which we consume limited resources.
If that means that Governments stop supporting the wealthy, to the detriment of the bulk of the population, so be it.
Logically, why should the public purse be waiving capital gains tax for the wealthy? It’s neither logical nor ethical. Our greed should not be allowed to make life difficult for others.
The sooner Dymphna’s ideas on positive gearing reach the masses, the sooner the scourge of negative gearing will be put to rest.
Ken says
Well said mate.
Derek says
I’d like to see exactly what the Labour policy is. What exactly does scrapping negative gearing on existing homes mean? We have an existing property which we rent out. Our income from rent exceeds the money we spend on it annually. The money spent on the property is subtracted from the income derived and then we pay the appropriate amount of tax on the difference. I believe this is called positive gearing. Will the new policy mean I have no deduction for my expenses and hence pay tax on the full derived income or will the new policy only apply where expenses exceed income. Its hard to decide which way to vote based on this policy when detail is not discussed!
Kathy says
Derek, what Labor are proposing is to wind back the deduction on loss making properties for any properties purchased after July 2017 only. All existing property owners and investors are unaffected, as the proposed policy will be grandfathered in.
You will still be able to claim all your expenses, it will just be against any income you make from the property only, not any other income.
And this is the crux of the problem. Australia’s taxable deductions on loss making property are overly generous. They allow deductions against ALL income including job income, not just from the property. This is completely unfair to the real and productive business sector who do not have this luxury of being able to claim expenses against any other income, only their business income.
This DOES cause distortions in the market, particularly on prices. It also means people buy property for capital gain instead of yield, which to me is gambling and speculating, and in this deflationary time is by no means guaranteed.
Australia can no longer afford to give such such generous tax deductions that benefit only a few. Our private and public debt is growing at an alarming rate. I agree that CGT concessions also needs to be addressed as well as supply. All these areas need to be looked at, not just negative gearing in isolation, but it’s a start at least. The sky will not fall in should it happen.
As a property investor myself, and someone who is also a beneficiary of the current negative gearing tax allowances, I am nonetheless in favour of winding it back to what it was when Keating reduced it in 1985, as I would like my children and grandchildren to be able to afford to buy a house when the time comes.
And let’s put a few other myths to bed at the same time. When Keating removed the concessions last time in 1985 to 1987, rental prices did not go up apart from Sydney and Perth, who already had ongoing supply constraints. In Melbourne they stayed flat and in Brisbane and Adelaide they actually fell.
Vacancies did not rise either, they stayed fairly constant and completely in line with the period both before and after its removal.
Housing starts dropped somewhat, but interest rates at the time were 15% and increasing, and the falls were no more out of the ordinary when compared to the time both before and after its removal.
It was only reintroduced because the vested interests, lobby groups and big donors wanted it back (and no doubt, more than a few politicians who would benefit from its return) and the scare campaign put on by these vested interests. Very much like what is happening now. Eerily so, in fact.
Dave says
Kathy.. SPOT ON I have to applaud you for everything you wrote above and also…. “They allow deductions against ALL income including job income, not just from the property. This is completely unfair to the real and productive business sector who do not have this luxury of being able to claim expenses against any other income, only their business income.”
Eileen says
Kathy, the thing you failed to mention is the fact that businesses can roll over their losses until the next year. The ATO doesn’t allow that with negative gearing! So if I sell my properties, take my money and put it into a fruit shop on the corner and lose money, I can claim any losses in the current tax year or the next. Why do people try to demonise investors but not business owners? For investors…………this is a business!
Dave says
Eileen, that is why they are saying that you will be granfathered in. The NG changes need to be made to NEW properties only. Increasing supply, normalising older house prices and creating more employment.
Steven Hambly says
Your place would be ok and you could continue doing what you already do tax wise. Labors policy would stop people that buy existing properties after a given date from claiming deductions like you do now.
md says
Negative gearing is not the sole cause of the housing bubble we are experiencing but it is ONE cause, and at least Labor is offering to do something about it. Yes, supply bottle-necks is another contributing factor as is foreign investment (legal and illegal), massive immigration, low interest rates and allowing SMSFs to leverage into property. There are other causes as well.
But Jon, what you’re saying is that we should keep property prices artificially propped up at the expense of those priced out of home ownership. Other countries manage perfectly well without the over-generous negative gearing concessions and they don’t have housing bubbles the magnitude of ours, either.
Dave says
Other countries manage perfectly well without the over-generous negative gearing concessions” ….SPOT ON MD.
swerdna says
This is great Jon. no one seems to be making the connection between first home buyers % drop and the investor % increase. young guys at work are using the tools that are available to them now by purchasing a property in the outer suburbs anywhere they can afford, while renting in the city next to nightclubs etc.
Times change, when I was looking for somewhere to live in the early 90’s (during our recession that we had to have) there were no jobs and interest rates were at 18%. Now there are different challenges that face anyone getting into the market.
To change negative gearing would now close the door on first home buyers that are being a bit smarter and using the tools that already exist, instead of complaining.
If you want to put a hold on house prices, look at capital gains tax, countries like Austria have a very high CGT at 30%, which reduces buy 2% each year after 10years of ownership, it stops quick turn overs. In some parts of the US you can’t subdivide the land unless you live on it. All measures that they have used to control housing affordability. It will never happen here because this would effect most politicians bottom line.$$
Politicians are known throughout the word for their lying and cheating, to put your hopes and dreams in the hands of a politician (Liberal or Labor) will only end in disaster, and like Jon said, everyone will still be complaining in 3 years time all over again.
Dave says
“everyone will still be complaining in 3 years time all over again.” Maybe… but at least the market will be a natural supply and demand market and not an artificially propped up market by NG tax handouts which will save the government billions of dollars that can be put back into our most important asset… Education and our kids futures to compete with the world.
Hugh says
Labor introduced CGT in 1985 after promising not to in 1982. Liars! And the web is wider – rather than go as guarantors, a colleague paid the deposits on his grown up kids’ 1st homes, and had his gifts incorporated in “Tenants in Common” as protection against any future split-up. When these were subsequently sold, while the kids paid no CGT, their parents had to pay thousands on their proportion.
tezza says
When is the last time ANY government made a change for any reason other than to score political points?? That is the problem with the whole system – every party makes promises that WE cant afford based on some hypothetical savings (or over optimistic forecasts of what is going to happen with revenue) and then when they get in they deliver on the expensive promises but more often than not the savings measures get canned due to lobbying by special interest groups (looking at you here Jon!) and we just end up with more debt and more people taking handouts from the government and complaining if anyone proposes to cut those handouts.
Personally I think it would be fairer if Negative Gearing and all CGT exemptions except the family home were cut, remove all tax deductions for personal tax and go to a lower flat tax rate (with a tax free threshold). No need for tax returns (I can hear the accountants protesting already – not fair!). Will never happen though because any time ANY tax reforms get raised the special interest groups come out and mount a scare campaign and the government backs down.
I don’t believe that you would be able to detect any significant change in house prices if the Negative Gearing changes are phased in over a few years – it may stop the rampant growth but very much doubt it would cause a big decline – probably a few years of stable prices which quite frankly would not be a bad thing for most people.
Lawrence Anderson says
You hit the nail on the head Jon, lack of land has been the main factor for a long time now. Land is the major cost of a property and its supply is held back for numerous reasons. The NIMBY and councils. The developers drip feeding onto the market to hold up prices. Governments zoning regulations and not wanting urban spread to create huge costs of utilities and road supply and slow government approval processes. Perth has ample flat land but it is artificially zoned into corridors to hold back urban spread and very slow approval processes. Victoria is much better in this areas and so the land prices are comparable to Perth despite the much larger population. In the end it all gets back to supply and demand.
Suzsi Welch says
FYI – I worked for a small developer and we were being held back constantly by the Council. We’d put in a subdivision plan, after 2 months, it would get knocked back, after re-working it, they’d say Oh we’ll consider it within the next 2 months. It took a YEAR to get one subdivision released and by that time, we’d paid a year’s worth of interest to the banks and that was over a million dollars – for nothing. All because the Council delayed and delayed.
The small developer went broke.
Ken says
Hi Jon, Even Dymphna hates negative gearing. I think affordability depends on what side of the fence you are on. But tell me mate, what has your LNP done for house price affordability. Sweet fu-k all. I want to see prices go up too, but let people build their own house to start off in, like I did. We all done wood work and metal at school. So a little common sense, and presto. And by that, I mean build them themselves. Not subbie it out.
Arnold says
One aspect which is being over looked is why do I have have investment properties? Being a baby boomer the Super scheme (as a relatively late contributor) was not going to pay my way in retirement. I would need social welfare. So I did the next best thing and invested in a number of houses over a long period of time so that I can have a reasonable income in my retirement without being a burden on the state. The most important aspect is that I will continue to pay tax on my property income (rent charges) unlike pensioners on social welfare. And by the way when I bought our first home it was after I saved for eight years for the 25% deposit required plus money for legals, bank fees, conveyancing, etc. The young ones want the big McMansion from the day they start living together. So to further encourage this the Labour party want to hit us around the head where I suddenly see my investments decline severely in value. It is unlikely to encourage further investment in second hand property and even when buying a new property because it will depreciate in value. Also there will be an impact on the CGT raised because property prices for second hand homes will now be a lot less and existing investors because of the grand father clause will more likely hang on; that is if the LVR stays at a reasonable level and the lending institute doesn’t call in the loan because the property doesn’t cover the existing debt. Does Labour ever think things through or is this another hairy arsed back of the envelope scheme like the pink bats, BER, Mining Tax and the Carbon tax to name a few. Give me a break, they do not look after the ordinary worker just look how Bill looked after the cleaners. My wife and I started with nothing and we worked and saved and slowly built up our assets. We had the dream like a lot of ordinary people have. Not all of us are high paid executives or have our snout in the public through like some useless left leaning politicians.
Suzsi Welch says
Spot On!
Dave says
sorry Arnold I disagree. “The young ones want the big McMansion from the day they start living together.” yes..some do.. but most young ones can’t even afford the cheaper homes now because they get snapped up by property investors first. Also, I am not sure of your age… but my baby boomer father had a much lower cost of living in 1971 before they started printing money to the point it has devalued by 90%. You also said “I suddenly see my investments decline severely in value” …well if you do some research you will find this is B.S and a liberal party scare campaign. Your rents are driven by wages NOT by house prices so no need to worry there and your house price may fall by 10% at first… but will come back to a more natural market value price fairly quickly due to demand from new home buyers…and the government will save billions by not giving you a handout for NG.
Eileen says
There’s a touch of the green eyed monster about your post Dave. If you work hard, follow the rules and pay your bills, you shouldn’t take advantage of the systems in place to help fund your retirement eh? I see no one mentioned the massive superannuation losses by the baby boomers during the GFC! People want to fund themselves in retirement and property is one way in which you can do this. Investors also have to pay the going rates for property too you know? The government are limiting salary sacrifice amounts for older Australians preparing for retirement, at the very time that they can afford to put some money aside. I base my rents on what market allows, (as the ATO demands market value) and not on wages or house prices.
Dave says
Superannuation losses by baby boomers eh? you do realise the younger gen has losses exactly the same as well? This is all they have at the moment because they didn’t capitalise on the MASSIVE growth of property that Baby boomers have had the privilege of utilising and the lower cost of living. Also, the MARKET rent is set by wages in that area but no it is not the only factor, interest rates, supply etc…..that is why you have different rents for different areas.. Also just a question… if Baby boomers could buy a house in 1979 for 3 times yearly wages and had a much lower cost of living…What the hell did they do with the extra cash??? I can tell you right now…if young people today could buy a house for 3 times wages (80k x 3 years = about 240k) instead of 10 times wages and they had a lower cost of living.. imagine what they could accomplish.
Eileen de Lapp says
Firstly Dave, you couldn’t possibly have lost as much during the GFC as older people because most younger people don’t have the disposable income to save in their super accounts or the years doing so. The ATO set the salary sacrifice limits for older people higher, (as they were nearer retirement). The other thing I don’t understand is why you haven’t gone out and bought yourself an investment property? My 20 year old, (almost 21 yr old) did and rented it out. It cost $60 per week after her expenses were deducted from the rent. She went out and did it again at 22. She’s taking advantage of the system set up in this country and the unbelievable low interest rates. I don’t recall you addressing the 18% interest rates we had to pay! She’s got a boyfriend who bought a property too! I think you’re just a whinger and your old man appears to be doing you no favours telling you how hard things are for you today…..poor little possum!
Paul says
Scrapping negative gearing for existing dwellings will crash the housing market?!?!? Pffffffftttt! Give me a break!!! Ridiculous. I’m sure the policy has nothing to do with reducing the affordability crisis but more to do with addressing the apparent ‘budget crisis’ if I remember correctly. The only thing that will crash the market is when the baby boomers flog there investment properties all together to fund there retirement holidays. Houses they bought at double the yearly wage not 10 gold as of today and all while receiving free education and health care. Don’t they scream now that they may have to give a little back.
Dave says
Exactly paul. My dad said to me the other day…that he was born in the lucky generation. He bought his first house for equivalent 2 times his yearly wage. Now it is 10 times. But NG has nothing to do with it now does it..lol. Yeah ok, john has a point with supply and demand… but wont limiting NG on new homes only… increase the stock?
Eileen says
My baby boomer husband had to pay his way through university, picking up jobs wherever he could find them. Then he had to pay up to 18% interest on his home loan. Now he is told that he’s a burden on society. He is 65 and still working, while ‘Gen Y’s’ say he’s had it good all his life! Dave’s dad must be a lot older than my husband as the average price of a house in 1979 (when we built ours) wasn’t anything like two years pay!
Dave says
Whatever Eileen. A median house in 1979 was 37,000. Avergae weekly median wage was $235 a week. So they makes it 3 times yearly wages… I asked my Dad and it was 3 times yearly wages not 2 like I said but still close. Also, baby boomers didn’t have to contend with the MASSIVE foreign buyer onslaught that younger people have to contend with now or the lack of supply of land and masses of professional investors. Cost of living was also much cheaper… so some Baby boomers had it good.
Suzsi Welch says
I was once a real estate sales person and I am a small time property investor. Apart from my home I have mortgages on a rental house and a block of land.
I can’t sell the block of land because I bought it just before the GFC hit and took the boom out of the market (I bought at exactly the wrong time!) and now my land is just about back up to the value that I paid for it about 4 years ago. That took a chunk out of my retirement fund! So people – fight anything that will reduce the value of anything you own because there are more property owners out there than people wanting to buy. ie: If the prices drop 10% then everyone who owns a house (even their own home) will lose 10% of the value but don’t expect the banks to be sympathetic and reduce the value of your mortgage! LOL
The reason that I own a house for investment because that is the best way to invest in Australia. Every house built employs about 2,000 people. Everyone who works for the land developer, drives an earthmoving machine, digs a trench, mines the clay for the bricks, makes carpets, sells furniture, and all the other govt/council/tax/building personnel – not just the obvious builders. AND they all pay tax on their income and the buyer (me) pays 10% GST on everything and then pays Stamp Duty at (In Vic) approx 5% (variable). So the Govt is getting income tax and GST and Stamp duty because I bought a new house. Add to that, no only did I give all those people employment, but now I’m giving someone a place to live, paying income tax on their rent, paying the agent fees + GST and all I’m hoping to get back is depreciation. My negative gearing is so low that anyone who actually understands it will laugh at the concept of that being a contributing factor.
Ask Yourself – When did you EVER get a rebate of any worth from the Government? Negative Gearing is the same – you get back a portion of what you outlay (at a loss) in the same proportion that you pay tax.
So – Whatever I earn from my wage, then I pay 1/3 in tax. Then after that I have to pay money towards the cost of running a rental (fees and mortgage) and I can claim back 1/3 of my losses after they have taken into account my rental income. And I have to pay tax on that rent.
Trust me – that is not driving the market up.
Why I am doing it is because I hope that the value of my rental property will continue to rise so that one day I will not be dependent on the Govt for a pension and live in Govt supported poverty for the rest of my declining years. It is in fact my superannuation plan!
Now if we investors all decide to chuck our tenants out onto the street because we all decide to sell our rental properties, 2 things will happen:
1) There will be an immediate drop in the value of property around Australia due to a sudden but short term glut of properties on the market. That will affect all the other home owners who suddenly find that their home is not worth as much BUT it will ONLY affect the LOWER end of the market, not the Millionaires homes because rentals are generally basic homes worth about $400,000. The top end of the market won’t be affected because nobody rents there.
2) There’s going to be a LOT of homeless people if we all sell our investments, and the government doesn’t have public housing available for them. The waiting lists for public housing is already years long.
Don’t vote for anyone who wants to make the housing market harder for investors. All I’m doing is trying to make sure I don’t qualify for the pension. I’m not some rich capitalist, I’m not some wealthy industrialist, as Tom (see letter below) seems to think. I’m a single working mum and I don’t trust or understand the Stock Market.
If the Government REALLY wants to make housing more affordable then it’s easy. Just DROP the GST and the STAMP DUTY on houses for FIRST HOME BUYERS and that will INSTANTLY drop the prices by 15% instantly making them affordable. Only do it on New houses.
The Government wants to reduce home prices for first home buyers – easy! Stop taxing them!
Dave says
you said “Now if we investors all decide to chuck our tenants out onto the street because we all decide to sell our rental properties” is totally incorrect as they will be grandfathered in which cancels out your 2 points. Robert Kyosaki and other smart investors always say…if you invest in the asset for capital gain, you will lose. Look what happened in the U.S, they were all hoping for a capital gain instead of focusing on positively geared properties. You can still not qualify for the pension by investing in NEW properties and keeping your old NG property (grandfathered in), which will increase housing stock, increase employment and lower prices on older properties for younger folk. Even if the rental property prices fall by 30% which has been proven to be absolute B.S..I think it will only be 10% drop..due to demand…to begin with and then will naturally rise in price (not propped up by artificial means like NG). If my Dad’s house goes down in value by 10%..who cares… he got the MASSIVE 10% per annum gains on his property because of the B.S negative gearing artificially propping it up in the first place at the tax payers expense.
Eileen de Lapp says
Dave, you seem to think NG is evil. You can only claim it if you have a loss, I bet you don’t have a problem with the local shop claiming a loss on their investment? What about an investor who sells shares at a loss? I can claim thousands in NG but I’m retired, so don’t have any income, (or tax paid) so I can’t claim any of it!
brett duck says
you forgot to mention paying council rates and water rates that your tenant receives the benefit of.
You also forgot to mention being slugged capital gains tax if you sell in the future as the depreciation on the new building also reduces your capital cost base .
You also forgot to also mention the GST was promised to replace ALL taxes so why are we still paying Stamp Duty .
You also forgot to mention the risk you are taking of having a tenant not paying rent and / or trashing your investment property.
there is also GST on the insurance policy you have to pay for on your investment property.
Also State land tax if you own a lot of property in one state of Australia.
Suzsi Welch says
I know I know….
I could have written a book! LOL
Thanks! 🙂
Eileen de Lapp says
Brett…..and landlord’s insurance too! 🙂
Eileen de Lapp says
Suzsi….As far as I’m aware, there is no stamp duty on new homes. The First Home Buyers bonus used to include a stamp duty waiver but the real estate agents factored it into the price of the home that the first home buyers could afford, pushing up the price people could/would pay. I do agree with most of your comments! 🙂
Suzsi Welch says
Hi Eileen, Yes there is. What I think you mean is there is no stamp duty on the HOUSE because you can buy the land and build. In that case, the stamp duty is factored on the price of the LAND (say $200,000) and then you build a house for $150,000 on that land. the total cost is $350,000 but the stamp duty is calculated at $200,000 Land Value. That’s UNLESS you buy the brand new house AFTER it is built – then you pay stamp duty on the land + improvements which is the full $350,000.
And that’s for everyone in all states. But the amount of Stamp Duty changes between states. here in Victoria I think we are the highest at an incremental rate of approx 5% (that’s good enough for a quick guesstimate.) Thank you for replying to my comment! Nice of you to take the time.
I would love there to be a stamp duty waiver on FHB’s. It makes sense. But i don’t think the REA’s can factor it in because they are competing on the open market. it would have only meant that the FHB’s could pay a bit more because they didn’t have to allow for the stamp duty.
droidie says
And the counter economic argument, against voting Coalition, is that with their severe austerity measures, and reduced government spending, will result in less jobs and a more subdued business environment resulting in more people saving their money, not spending, resulting in business’ downsizing, reducing their staff and putting people off. A shrinking economy means less tax revenue, which under a coalition government will result in even further government spending cuts. A downward spiral that results in less jobs and greater unemployment (which is already happening). Without jobs people can’t buy houses, let alone rent, less demand results in a fall in house prices. Higher unemployment will see a growth in mortgage defaults. Over supply and forced sales will see another reduction in house prices. The banks get scared and further tighten their lending policies meaning less investors are able to pick up these now discounted properties – less buyers equals lower prices. People also choose not to invest, too scared that they too will lose their jobs. Conclusion, a vote for the Coalition, with their severe austerity measures is a guaranteed vote for a recession and a housing market collapse.
Steven Hambly says
If the labor negative gearing policy came in there would be a mad scramble to buy existing properties before the policy date. Then after that existing properties would drop in value since investors would no longer be interested in them. By the same token, new properties would go up since investors would suddenly crowd that section of the market. It would be a distinctively two tiered market under the labor policy and perhaps it would be good for first homebuyers getting in to much lower priced old houses and units.
Eileen says
First home owners grants are available on new properties only. If investors were looking at buying new properties only, (under Labor) how would the first home owners compete? That’s why this idea is ridiculous! If I as an investor buy a new home tomorrow, it will become a second hand home immediately. So all the homes in Australia would not attract any investors, as they would not be able to negatively gear them. What do you think that would do to rents? Up, up and away! Every time the government interferes with the housing market, they lose. I wouldn’t consider selling my properties ever, if Labor got in. Oh look, there’s all the stamp duty drying up now………….
md says
Eileen, it’s actually far more of a two-tiered policy the way things are now. First home buyers are competing with subsidised investors (subsidised by the very taxpayers they are keeping out of home ownership). It’s far easier now to buy your second, third and tenth property than your first.
If investors did stop buying established property why would rents have to go up? If investors stopped buying, prices would fall, enabling some renters to become home owners. What’s wrong with that? And, guess what – if prices fell, then some investment properties might be able to be positively geared! In any case, those who are currently negatively gearing would not be affected.
“Every time the government interferes with the housing market, they lose.” Negative gearing is just one of the many government-induced causes of the housing bubble. It has contributed to a huge distortion in the housing market. If there was no government distortion, then one group would not be favoured over another, making it a level playing field. And prices would drop, making it a lower level playing field than we have now. And this is what all the vested interests are complaining about.
Eileen says
May I remind you of Vendor Tax? That drove investors away from NSW in droves! I think it’s safe to say that many never came back. The Government only helps first home owners with purchasing new properties, (subsidised by all Australian taxpayers).
Under Labor, they would be up against all the investors in Australia! There aren’t enough new homes to satisfy demand. Investors are also landlords and they rent out houses. If the investors stop buying used properties, rents go up, as there’s a short supply of rental properties. Then renters compete for the available stock. It might make more sense for the investors to be limited to used properties only and leave the first home owners free to fight over the new ones?
I know you’re thinking like a home owner, not an investor. I am an investor and no one can make me invest, if I don’t feel the risk is worth the trouble. I am currently neutrally/positively gearing my properties so I don’t get the negative gearing available to most investors. I am also retired so I don’t have any tax to claim against.
Many people think there’d be no problems if investors stopped buying houses. If that were true, there would be many empty homes out there with negative equity, as a result of the fall in prices and no stimulus for any new homes to be built. Do you want that to happen to your family home? What would that do to the economy?
Don’t forget the government bill to house people without a roof over their head! My family have accommodated up to 10 people in rental properties at one time. Investors, (outside of SMSF) pay a lot of Capital Gains Tax when selling. If investors sit on their used properties, the government won’t collect any of that.
Suzsi Welch says
I agree with you. 🙂
alistsir says
This would have to be the biggest load of nonsense i have heard from a so called millionnaire. So by your thoughts if you bought a business and for the next 10 years lost money you would think that this is a good business. You are either drunk high or ignorant. No you are just a grubby spruiker looking to suck people into scams. I would gladly take on fools like you any day publicly. Jackass
ZB says
I looked at the ASIC report. Looked pretty weak to me to be quite honest..
alistsir says
Which report are you referring to in reply. Anyway there is lots of info on this crew and many other property spruikers. The whole lot are grubby and thieves without a weapon. A crook is a crook. These worms i would take on anytime with qualified research from investment firms around the globe along witb our legal panel. As i said of this crew and others like it. Theiving lot run by a jackass sucking in the vulnerable and gullible…..
Craig says
What everyone seems to forget that due to the previous bungling by the Labour party when they were in government, this country is now paying 1 billion dollars per week to service the
debt this country has. any austerity measures should be welcome as we must get the budget back
into surplus, which even Labour has said it will take a minimum of 10 years for them to do so, of course who can believe them with so many promises that they would return the budget to surplus when they were in government, especially from the world’s worst treasurer Wayne Swan. Spending on education and health will
do nothing to rectify this problem and in fact with Labour’s spending promises to date it will only make it worse.
Suzsi Welch says
Labor Governments ALWAYS put us in the red. Historically. Check it out. All major recessions occurred under a Labor Gov’t. Paul Keating is the King of the Banana Republic with the recession that we had to have and “Little” John Howard put right, got us back stable and Ooooops! We were dumb enough not to like it!
Now we’re suffering again.
The bottom line is that the Libs handle money better. Sorry, but that’s it. And you can’t do anything unless you have money.
Tom says
Suzsi, you should have read Dymphna’s article about the cyclic nature of recessions. Prepare for 2025-6. A cynic might suggest that the powers that be arrange for their favoured party to be in opposition when the shit hits the fan, so they don’t look quite so bad.
If your blue-eyed boys are so good at money management for the nation, how come they have trebled the nation’s debt? They can’t blame it all on the previous Government. If they had the nous, humility and negotiating skills of Julia, they would have been able to manage the Senate – but three-word-slogans and bullying are not enough at that level.
Let’s all grow up and be realistic. There was a GFC, even though the blue team prefer to ignore the fact. Surpluses are nest eggs stored in boom times, to allow extra spending on rainy days. We in Oz are benefiting from the continued good times, unlike nations which were already in hock before the GFC hit. Fortunately for us, China’s exponential growth came just at the opportune time. Hopefully, the red team have learned their lessons on choice of projects for stimulatory spending and on holding the borders secure.
If you ask me, it’s Tweedle Dumb & Tweedle Dee!!! Neither side is very inspiring – but luckily, so far we have not had a Trump (megalomaniac reminiscent of Adolf?) to deal with. God bless America — (even though we may not be believers) — they’re in for a rough ride. Like us, they are tired of the abuse of power by the lobbyists and their inept, corrupt career politicians. The sooner we learn from their example and straighten out the political donation/influence problem, at all three levels of Government, the sooner our politicians can reclaim the respect and support of the populace. Until then, people will continue to tune out.
brett duck says
Labor is meant to look after the working people.
When their attack on negative gearing policy moves property investors away from older housing to new outer suburbs how are the workers going to find rental properties near their work? Rent prices will go up due to lack of rental supply in older suburbs.
Suzsi Welch says
How come I got comments on my remarks but nobody has commented on what I thought was the bleedin’ obvious?
If the government wants to reduce the cost of home ownership to first home buyers it’s easy!
Scrap the first home buyer grant (available to new homes only) and scrap the GST and the Stamp Duty on New Homes !!!
That would reduce the cost of new homes by 15% straight away.
(and it’s far less paperwork than trying to administer a FHOG)
troy says
I totally agree with Jon, but I also believe if you vote liberal your an idiot as well. All parties don’t care about the country and the direction its going. They don’t care about its people. If they did the country would not be in the position its in today. They sit there and blame each other for their bad policies and never agree on anything unless its a nice pay rise for them selfs. Its all SHORT TERM POLITICS to gain votes to suit their self interests and set them selfs up for the future. The country and its people will never benefit from SHORT TERM POLITICS. The Country needs long term policies which take time to take effect. If a government can not provide a free education system for its youth and a free health system for all it should not be in power. We are over governed and to top heavy, The whole democracy system needs to change, the politicians and parties they represent need to be performance based and need to held accountable for their bad policies. Our governments are inefficient and incompetent, councils should be abolished and state governments take over to streamline policies. For this country to have any further the whole system needs to change where it eliminates self interest. Until then nothing will change so don’t think negative gearing policy or any other policy is the be all end all. Read between the lines and look deep into what we are being sold from our so called leaders.
Leo says
Hi All. I am coming in a little late on this discussion, but I wanted to see where the conversation went. Ok, has anyone one considered that GST on new property is part of the affordability problem. After all it adds 10% immediately to the price. If I were selling in the future, I’d want to regain some of that. Another thing I’ve always had contention with is Real Estate agents pushing up prices. Vendors are a part of this by agreement because they want as much as possible for their sale. I know a property is only worth what someone will pay, but that can be can be illusionary based on forced up prices. Of course there is good old Stamp Duty.
In days gone by, sales tax was applied to the purchase of new products, and that should include houses. But only greed by government would impose the same tax again on a second hand house. Each time any of these added costs is applied to the purchase of a property, it will automatically raise the price. Wages do not rise at the same rate of housing so therefore eventually house prices will outstrip the ability to pay for them. This has been developing from my first days of adulthood back in the 1960’s. My father paid for his home from one wage. Now it requires two wages and soon that may not be enough. We may need to decentralize our cities to open up more land so we can live nearer to where we work, and the demand for inner big city living is not such an intense competition.
Cheers. Leo
Suzsi Welch says
Has anybody noticed…? Only the market has gone UP around here and there is a lot of buying going on. So for all those below who foretold a crashing property market … Don’t think so!
That makes me a happy little investor.
It also makes me not dependent on the Govt for handouts.
🙂