Scrap Negative Gearing on housing

[Hondo]

Yeah but eliminating negative gearing won't stop property speculation by investors. Some don't need to negative gear to invest in property. You would reduce the number of first timers in the property investment market but it won't deter everyone.

[Banker]

Yeah but eliminating negative gearing won't stop property speculation by investors. Some don't need to negative gear to invest in property. You would reduce the number of first timers in the property investment market but it won't deter everyone.

Exactly.

Just like every other country...

[Psyber]

Yeah but eliminating negative gearing won't stop property speculation by investors. Some don't need to negative gear to invest in property.
You would reduce the number of first timers in the property investment market but it won't deter everyone.

That's true.
In the late 1980s I got out of property investments, like a lot of others, because I was paying interest rates at around 14% and rents were not covering that, even though they were going up.
Negative gearing was they only thing that kept me in it as long as I stayed - once that went it was time to get out.
(And I was doing well paying 14% on rolled over quarterly Bank Bills when normal housing loans were nearer 17%.)

Then interest on cash deposits was doing better than rents, and property did not look like offering capital gains in the foreseeable future.
Eliminating negative gearing was the last straw triggering a bail out and the rental property shortage.

These days I have enough capital to invest on lower borrowing ratios, and rents are paying better than bank deposits.
So, I can afford to stay in property now without relying on negative gearing like I needed to 25+ years ago.
But a lot of those early in their investing careers would have to bail like I did then, if negative gearing were banned again.

(It would work OK for me as I could stay in the property market and reap the higher rental rates as the rental housing shortage began to build, and have enough equity to ride out a price slump.)

[Banker]

(It would work OK for me as I could stay in the property market and reap the higher rental rates as the rental housing shortage began to build, and have enough equity to ride out a price slump.)

Please explain how a rental shortage will occur if 90% of investment properties are existing anyway?

[Psyber]

(It would work OK for me as I could stay in the property market and reap the higher rental rates as the rental housing shortage began to build, and have enough equity to ride out a price slump.)

Please explain how a rental shortage will occur if 90% of investment properties are existing anyway?

As I said in my first post on this subject (above) when investors bow out the houses get bought by people who are intending to live in them not rent hem out.
(Because less investors are there out-bidding them.)

Thus the houses still exist but are removed from the rental market, lowering the available stock.
There is rarely ever an excess of rental houses in good locations, and that means it doesn't take many removed from the market to start a real shortage.
(And kick up rents.)

[Banker]

Why doesnt this happen in every other country? Why is Australia so special?

[dedja]

So no-one in the USA can claim mortgage interest as tax deduction? Is that what you're saying?

[Jimmy_041]

SET <let's digress> = ON

It would have been good to watch them having a crack at each other in the past year
Pyne is in his prime (ar$ehole status) at the moment

SET <let's digress> = OFF

[Jimmy_041]

You can claim interest off your tax in USA and Hong Kong that I know about.
Happy to scrap negative gearing if we can do that.
My properties are now positively geared so the Govt make money out of me now

[Psyber]

Why doesnt this happen in every other country? Why is Australia so special?

Oz has a culture heavily orientated to home ownership.
Many older countries seem have a culture of renting because much of the property belongs to, and has for centuries, the old families (as in the UK), or more recently, to the government...

[Banker]

Q&A last night;

[Psyber]

The Q&A panellists hedged a bit, most saying "It needs to be looked at" rather than being more definite.

Issues:
1. Why should any tax payer if paying taxes on all his or her income not be able to tax deduct all their expenses in earning that total income.
Is it fair to exclude some expenses?**

2. As I said before, when Paul Keating had a shot at ending negative gearing the roll on effect was a bigger problem and he had to reverse it.

3. Negative gearing ceasing would not get me out of the real estate market as an investor, nor many others.

4. Restricting negative gearing to new properties would not move my investment, or that of like-minded investors, toward buying new houses on tiny blocks in the less desirable outer areas as one of the panel and the questioner suggested to increase housing stocks. Location is the key to success.

**There are always work arounds - when Paul Keating allowed the ATO to exclude farming expenses from deductibility against other income where the small farm was clearly a hobby farm that would never make a profit (in their view) I simply moved into more exotic ventures that they could not claim to be able to prove were unlikely to ever make a profit - transplanting embryos from Texan Angora goats into local stock animals. That cost me a few thousand, but much less than the retained tax deductibility was worth to me at the time.

[Banker]

Yeah i'm over it Pysber. I've accepted that Abbott and Hockey have investment properties themselves so we wont see any reform.

They actually believe increasing house prices will make up for slowing mining boom and the baby boomers retireing









I'm quiet happy to sit back and wait for it to pop. Just like plenty of other First Home Buyers:

[Interceptor]

Yeah i'm over it Pysber. I've accepted that Abbott and Hockey have investment properties themselves so we wont see any reform.

They actually believe increasing house prices will make up for slowing mining boom and the baby boomers retireing

Got a direct reference for this claim?

I'm quiet happy to sit back and wait for it to pop. Just like plenty of other First Home Buyers:

Only a significant drop in full time employment will trigger any sort of dramatic drop in house prices in Australia.

[tigerhutch]

If individuals can build personal wealth through property investment aided by negative gearing for their retirement then that's less the Government has to pay in pensions

Fantastic.

Except residential property should not be used to speculate. Buying and selling second hand houses between ourselves does not promote any sort of economic benefit.

It fact it hinders it.

Increasing private debt is choking our economy and will take decades to pay off.

the Banks would disagree with that statement

[dedja]

I suspect someone has changed the 'W' to a 'B' on his/her keyboard ...

[Psyber]

The escalation of house prices has been going on for a long time.
My first house (early 1969) cost about $10,800, and I sold it in late 1971 for $14,750.
My second house, built new on a block in Klemzig cost just over $19,000, and I sold it in late 1975 for $45,000.
And so on...

I don't think there will be a bubble burst like in the USA and UK because the economic factors in Oz are different.
In fact my view is that last year was the ideal time to get into the market.

There is a cyclic rise and slight fall back pattern in Oz.
SA is slightly different from the eastern states in that the fluctuations are a little more dramatic.

My worst experience was buying a house in Prospect (Barker Rd) in 1976 for $60,000, as until the end of 1983 I would have been lucky to get my money back.
However, I was fortunately in a position, when I wanted to move in 1983, to go ahead and borrow to build another house and move in late that year.
I sat on the one at Prospect and waited for the market which was showing signs of recovery. In May 1984 I got $158,000 for it.
(Not a bad return for leaving a house empty for a short time.)

Interestingly prices were more stable prior to the late 1960s.
I suspect, but I'm not sure, that wages were more stable at that time, too.
My parents bought their first home in 1956 for 5200 Pounds ($10400) - about the same as I paid in 1969.
Mind you we had a recession during the mid-1960s too.

[Banker]

I don't think there will be a bubble burst like in the USA and UK because the economic factors in Oz are different.

We're different!

Case closed.

[Q.]

Increasing private debt is choking our economy and will take decades to pay off.

The opposite actually.

Consumers changed spending habits in recent years, with the ratio of household debt to disposable income plateauing, as households dramatically lifted savings rates.

"This deficiency of household demand (spending) effectively left a hole in the economy that had to be filled by increased demand (spending) by the federal government, which pushed the budget into deficit." - Macro Business