Anyone else spooked by this talk of removing negative gearing? The fear of a housing bubble collapse doesn't worry me at all. However, this -ve gearing thing does.
I seem to be seeing more on this topic every week. Just read an article in the BRW with the editor proclaiming that -ve gearing (and CG exclusion for PPOR) were absolutely to blame for the "current housing bubble". The editor seemed adamant that -ve gearing was the root of all evil and simply must be removed.
FYI – I do see a fundamental flaw in the logic. Almost every country around the globe that has seen a housing bubble burst recently did NOT have negative gearing allowances.Flawed logic or not, the prospect of no -ve gearing has got me thinking twice about buying again. Regulatory uncertainty is a right biatch for plotting a long-term strategy (Superannuation is a case in point). Right now, my property portfolio is neutral to slight positive. Most of this (except the rent) is due to depreciation and IO deductions. Without either or both of these, cashflow would be seriously in the red.
On the capital valuation side of things, I probably wouldn't be affected much because I buy "bread and butter" properties in the middle to lower third of the price range for the area. Always in demand and always affordable for the average voter. (My take on it is that properties in the high end would be seriously affected because alot of highly negative investors would sell in a hurry to stem the bleeding. The buyers/demand is/are thinner on the ground at this end of town. If they removed the PPOR CG exemption, this would extremely ugly indeed.)
It seems the government is really looking for every last penny in the tax system. And negative gearing is fair game. Does it really represent such a large portion of our tax base? Especially since the vast majority of folks don't buy IP's and of those, only very few buy more than 2 or three. I haven't done the hard math, but it does seem to me that volumes just aren't there for recouping significant tax revenue.
Anyways, keen to get the thoughts of others that are spooked and especially from those that are not.
I’m not spooked, I’m bemused. And of course, we’re talking about negatively gearing property only.
Approx 70% of individual investors use NG to fund their purchase. Around 1.6 million taxpayers used NG year ending 2010, generating a net rental loss of $6.5 billion. In my opinion, not a huge cost compared to providing about one third of the housing stock required for people who want/need to rent ~ one third of existing stock @ $ 3 trillion = $1 trillion?
Genuinely, what’s the alternative? Remove NG and with no new investors in the market, would history repeat, a la 1985, without a corresponding increase in supply? The estimated undersupply of homes nationally is already about 200,000, but I can’t see government embarking on a social housing building spree anytime soon. Didn’t the Henry Review recommend NG be retained?
However I am sympathetic to the view that NG does encourage investment into an unproductive asset. Perhaps it should be quarantined to new builds only.
Affordability IS an issue in my opinion, but isn’t it the inevitable end result of capitalism, growing population/demographics, lax lending previously…etc…all things that are hard to tackle/unwind?
Personally I’m close to neutral geared, so not bothered either way. The projected tax payable on my rental income in future years is horrifying, but that’s why mr ato gave me NG breaks upfront – fairly likely over time that income will exceed costs.
But what’s scary is a) no-one *really* knows how to stop speculation/lower house prices without affecting other things;and b) it’s in the hands of politicians!
But we do live in interesting times. I am hoping the govt hold onto the default policy…do nothing!
I'm always laughing at anyone who spooks investors with the sheer stupidness of negative gearing abolishment.
Ok .. so now you've gone and abandoned any incentive for people who with their hardearned invest in property so you can rent it out cheaply and have spare cash.
So now you are left with a situation where the market is no longer supported by investors who would usually be subsidising your accomodation.
As a result of there being less rental accomodation available … your rents will now go up as there is substantially more demand .. and now less properties available.
And the only person who you can turn to for housing assistance … is the GOVERNMENT.
Good luck with that.
The outcome? Rental properties become a scarce commodity. Rents skyrocket to the point where the government steps in and places rental controls to stop rents getting too expensive. Finding a rental property is a matter of who you know .. not whats advertised. If you are lucky .. someone dies .. and you get to hear about it from a friend, so you move in and pay rent under their name. Landlords who actually own property have no incentive to look after or maintain property outside of being threatened with lawsuits, so they do as little as possible as few times a year.
Think this is fantasy? No .. its called New York. Its already a nightmare with this situation. And it was totally unnecessary. You have it happening here and you will remenisce about how bloody good it all was.
Drew, so really, if we were just looking after our our own interests, then owners of +ve property * should* campaign for NG to be abolished?
I'd be glad to see Negative Gearing phased out on existing property, I can see the arguement for keeping it around for new constructions (only from the point of view of an incentive, but it could easily be removed and replaced with some other kind of incentive).
There is no way the CGT exemption for PPOR should be removed however. When you sellup you would be taking a big step backwards, and may not even be able to afford to buy the same or like property if the market has moved alot.
I personally think we should get rid of Stamp duty also & use land taxes on all property to make up for the revenue hit.
The government needs to look at making housing more affordable and less expensive to move around.
NG Property investor's want you to believe that removing negative gearing will be a zero-sum change with rents increasing to make up for the shortfall in refunded tax revenue. If thats the case, then why are they so worried about its abolishment? and even if it is the case I don't know whats so bad about the situation. The Government shouldn't be in the business of providing subsidised rents to the many.
I'm not sure what this idea of rental stock drying up is either? where are the properties going? presumeably there is 2 options?
A) Investor Sells up & a renter decides to purchase it. There is now a reduction in supply of property for rent, but also demand too. They cancel each other out.
or
Investor Keep's the property and doesn't rent it..Which beg's the question why? and can they really afford to service this loan without rent? and is it financially sensible?The idea that rents will definitely increase to provide a better yield are flawed, because there are in fact 2 things that will create a better yield higher rents or a lower property value.
Negative Gearing is allowing investors to hold more properties than they otherwise could, by subsidising the holding costs. This alone has a big impact on demand. What if each Negative Geared investor could suddenly afford 1 less property without negative gearing or 2 or 3 less?
I say cut property free and let it stand on its own 2 feet without the tax incentives.
bumskins wrote:There is no way the CGT exemption for PPOR should be removed however. When you sellup you would be taking a big step backwards, and may not even be able to afford to buy the same or like property if the market has moved alot.Oh no .. the CGT exemption is an assumed RIGHT by now for most Australians. If you mucked around with that your party in power would be voted out without exception. Its the type of deal that moves governments. People want their home CGT free. Its their 'right'. Doesnt mean it wont happen. Just means that people think they DESERVE it.
bumskins wrote:I personally think we should get rid of Stamp duty also & use land taxes on all property to make up for the revenue hit.Obviously a man who has never worked within any economy of scale. When you tax with stamp duty you tax on MOVEMENT of property. So .. anyone moves or purchases .. you cream a little off the top. THAT WORKS. When you tax with land tax .. you tax on OWNERSHIP of property. The end result is .. less people want to own property of larger scale, because its more expensive. It renders developments useless and incentives to own quality property negligible. Congratulations bumskins ! With your wisdom you have stopped people from owning property ! So who pays for it????????? YOU DO.
bumskins wrote:The government needs to look at making housing more affordable and less expensive to move around.The government has no responsibility towards providing affordable housing. Yes, they should be doing it, but they dont. Ask anyone who has been competing for public housing. The government spends your money like its chickenfeed and has no qualms in overspending because its never their money. Since thats always been the case since year 0 why are you suddenly expecting the government to develop a conscience to feed your need for affordable housing ???? WONT HAPPEN.
bumskins wrote:NG Property investor's want you to believe that removing negative gearing will be a zero-sum change with rents increasing to make up for the shortfall in refunded tax revenue. If thats the case, then why are they so worried about its abolishment? and even if it is the case I don't know whats so bad about the situation. The Government shouldn't be in the business of providing subsidised rents to the many.The government ISNT in the business of providing subsidised rents. The property OWNER provides the subsidised rents thanks to government incentives. Its not only a zero-sum game with removal .. it provides a situation where housing becomes a scarce commodity. And with any scarce commodity .. people use hard cash to get in. YES, it pushes up rents. But doesnt everything???
bumskins wrote:The idea that rents will definitely increase to provide a better yield are flawed, because there are in fact 2 things that will create a better yield higher rents or a lower property value.So lets take the market out of a market driven system !!! YAY !! And everyone will be allocated their fair share and people will be happy. Please excuse my sarcasm .. i hear a unicorn farting.
bumskins wrote:I say cut property free and let it stand on its own 2 feet without the tax incentives.Free from what? Its link to a market driven system? In return for what .. government controlled initiatives?
NOW you should see where the problem lies.
bumskins wrote:I say cut property free and let it stand on its own 2 feet without the tax incentives.
Ludicrous argument unless you support doing the same for every other type of investment-associated tax incentive. Shouldn't this then extend to equity margin loans, franking credits, business R&D, business operating losses and so on? If not, why not? Don't give me nonsense about these being "productive" parts of the economy. I see that excuse wheeled out unsubstantiated with evidence every other post.
Why not PPOR CGT? Right now it is fantastic way to inflate the price of property.
Why not take away the 50% 12 month CGT holding reduction on all investments, business or otherwise?
That said, thanks very much for taking the time to respond.
swampy30 wrote:I'm not spooked, I'm bemused. And of course, we're talking about negatively gearing property only. Approx 70% of individual investors use NG to fund their purchase. Around 1.6 million taxpayers used NG year ending 2010, generating a net rental loss of $6.5 billion. In my opinion, not a huge cost compared to providing about one third of the housing stock required for people who want/need to rent ~ one third of existing stock @ $ 3 trillion = $1 trillion? Genuinely, what's the alternative? Remove NG and with no new investors in the market, would history repeat, a la 1985, without a corresponding increase in supply? The estimated undersupply of homes nationally is already about 200,000, but I can't see government embarking on a social housing building spree anytime soon. Didn't the Henry Review recommend NG be retained? However I am sympathetic to the view that NG does encourage investment into an unproductive asset. Perhaps it should be quarantined to new builds only. Affordability IS an issue in my opinion, but isn't it the inevitable end result of capitalism, growing population/demographics, lax lending previously…etc…all things that are hard to tackle/unwind? Personally I'm close to neutral geared, so not bothered either way. The projected tax payable on my rental income in future years is horrifying, but that's why mr ato gave me NG breaks upfront – fairly likely over time that income will exceed costs. But what's scary is a) no-one *really* knows how to stop speculation/lower house prices without affecting other things;and b) it's in the hands of politicians! But we do live in interesting times. I am hoping the govt hold onto the default policy…do nothing!Thanks. It seems most folks are not spooked by this NG prospect. Either they don't understand the impact or the impact is trivial, as in your case.
The statistics of tax revenue deserve a detailed analysis. So I took a basic look at some ABS stats;
Total Tax Revenue (all sources and levels of gov in 2009-2010) = $332b
Taxes on Property (all types) = $31b (~11%)
Taxes on Individuals = 38% ~$126bSo, if 1.6m tax payers are generating a $6.5b loss from NG, this represents 2% of total tax revenue and 5% of the individual income tax revenue. Doesn't seem significant to me. Especially looking at the massive 11% we pickup through property taxes, most of which are state based.
Seems to me, that if you want to make a real impact on affordability, you need to target the big numbers first. (1) Reduce personal income tax, thus increasing serviceability and (2) Reduce those state based property taxes. Together they make up almost 50% of all revenue.
The added benefit of (1) is that most average families will spend the income tax break on more tv's, petrol and food. Thus the ATO picks up more tax revenue in this area. It just makes the average muppet "think" they have more money.Let's face it, removing negative gearing targets a minority that are doing something real about financial independence and thus not bludging off the nanny state in retirement. I can't see how nerfing that is a good thing in any way.
Something else that is forgotten in this whole affordability argument; Not everyone wants to get a mortgage and own their own home on day. It just isn't in their psychology and we should stop assuming that it is. Stop trying to "nanny" people that don't want to be helped.
Investor Keep's the property and doesn't rent it..Which beg's the question why? and can they really afford to service this loan without rent? and is it financially sensible?You must be logged in to reply to this topic. If you don't have an account, you can register here.
