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Not a lot of support here for potential FHO, never mind.
I am reminded of a phrase a very friendly and intelligent person once said as we walked through a somewhat seedy part of town: “we are doing the work of karmic minesweepers”.
It is probably hard or even impossible to imagine that someone who is intent on seeing negative gearing (NG) abolished has investor’s best interests at heart. But this is the case.
For those readers who have just chanced on this forum and are interested in clear insights into the Aus housing debacle and NG try:http://www.prosper.org.au/2008/05/19/unprintable-remarks-on-the-budget-gavin-putland/
For some home truths about RE from an honest agent, The Tough Truth:http://www.jenman.com.au/news_article.php?id=237
2003 RBA First Home Ownership report:http://www.rba.gov.au/PublicationsAndResearch/SubmissionsToParliamentaryCommittees/productivity_commission_first_home_ownership.pdf
To paraphrase key finding of RBA: The main reason for housing unaffordability in Australia is negative gearing. (Point 22 Executive Summary of report)
2008 Senate report Housing Affordability:http://www.aph.gov.au/Senate/committee/hsaf_ctte/report/b02.htm
Senate recommendations included:
4.2 – Tax System Review Panel consider implications for housing affordability and overall fairness of the tax system:
a) tax discount for capital gains on investor housing.
b) exemption from land taxation of owner-occupied housing.
c) current negative gearing provisions.
Now, as property investor you are obviously intelligent enough to make your way in the world. I understand that your wish is to provide a better future for you and your family. No problem. However, if ones providence is based on the impoverishment of another that is a different story.
Investors now make up about 20% of tax payers but unfortunately, some are not paying any tax at all. All because of a rort called NG:http://www.theage.com.au/news/national/landlords-tax-bonanza/2008/03/18/1205602384109.html
NG is like sugar coated poison or a floating mine in the harbor of peaceful co-existence. It is dividing society into 2 groups – investors and renters. And if you think a society can function under that limitation, good luck.
Some of you may even soon come to the realization that you should request the government of the day to drop NG. Who knows?
Bigger picture of housing affordability is not going to be solved until tax discrimination, NG, is removed.
Enjoy the day and happy thoughts.A rental property is said to be negatively geared when property expenses (mainly Loan / Mortgage interest) exceeds rental income. That is, the investment runs at a loss. Under current tax rulings, losses from NG can be claimed from other income sources.If Loan Interest deduction was only allowed against the rent of that particular investment property, not against other income, there might be some fairness in the property market. Currently, ease of property purchase is heavily skewed to investors.Also, if FHO are being beaten out of the market by investors with a greater borrowing capacity, one must ask whether these investors deserve negative gearing?As an example of tax advantage (includes positive and negative gearing):Assume a residential property investor buys a new $300k house:$60,000 = Tax credit (rental) on new property ($6000 for 10 yrs) $20,000 = Direct incentive ($2,000 for 10 yrs)$345,000+ = Loan Interest Deduction on mortgage debt for 25 yrs at 9%$50,000+ = Rates, repairs, depreciation, RE fees, insurance, etc over 25 yrs$470,000+ = Total approximate Tax credit / deductions for investor over 25 yrsCompare this now with a FHO / home owner buying the same property:$0 = Deduction / credit for Home owner, $7000 FHO Grant for FHOEven a primary school student could identify that $470,000+ is greater than either $0 or $7,000. That figure is still about $390,000 tax deductions ahead for investors buying existing properties.Apparently some commentators and our policy makers cannot see that is unfair advantage.So, I hope that explains what I mean when I say that negative gearing has destroyed housing affordability. I think the govt should be assisting home buyers, not those who least need assistance, ie. property investors. Investors have now proven they are not prepared to provide an adequate amount of housing needed in this growing economy (predicted 30,000 dwelling shortfall this year) nor maintain fair rents.
So maybe it time to swap recipients of tax deductions on debt. I think it is worth a try.
I have checked the following Labor site this morning (19/7) and there are 9 links to housing policy:
http://www.alp.org.au/policy/index.php#housing
There is much to say about other types of assistance given to investors but nothing about NG.
As you can imagine, as a potential FHO I am not a fan of NG and what it has done to housing affordability in Aus.
The main findings of both the 2003 RBA First Home Ownership report (Executive Summary point 22) and June 2008 Senate Housing Affordability report seemed to have evaporated into thin air.
If the govt cannot cut the root of the housing problem, ie. Tax discrimination against home buyers, then any number of so-called solutions it offers up are not going to work long term.
Property is a unique asset. Its main purpose is shelter.
Its secondary purpose is that it can generate income through rent. It should not be treated as a commodity by govt and the sooner that happens the sooner Australia can become a community again and not just an ever increasing social divide between investors and renters.
If you think there is no down side to gaping divisions in society, good luck with that.
