Labors negative gearing policy

Hi Nigel,

Can someone explain how only having negative gearing on new properties lowers house prices.

I’ll be in your “stupid class” too, ‘cos I can’t see it lowering house prices either – on the contrary. This is what I see:-

1. Investors are not the ones that “push prices up” anyway – home buyers are the ones who will pay more to get “the one they want” and they can sit on it for many years and grow their equity. Investors want discounts!!

2. If Labor is elected, there will be a short-term RUSH by investors to buy up ahead of July 2017. Now that scenario COULD lead to investors paying “above the money” to be able to fill up on properties that will have the negative gearing “grand-fathered” and help their balance sheets. This could leave home buyers further out in the cold for 12 months.

3. I assume that some investors DO use negative gearing – often as a portfolio mix of positive and negative, giving them sufficient positive Income to cover the costs of holding their negatively geared Growth giants.

4. Investors may well be more reluctant to sell their “grandfathered assets”, knowing that once sold, any subsequent purchase will be WITHOUT the negative gearing benefits (unless new). This puts a floor under the properties available for rental, but the ceiling might then stay awfully low, meaning no or little growth in “numbers of rentals available” – thus higher rents.

5. Taking away negative gearing benefits will likely delay new investors getting INTO the IP market, thus helping to exacerbate the rental shortage. It will also slow down existing investors who build their wealth by buying second hand and renovating.

6. With less Govt. financial assistance, the whole scenario is open to huge changes (maybe in FAR more ways that I have been able to dream up in just 10 minutes).

7. As always, Government intervention without across-the-board debate all around a subject is fraught with danger (think back to Kevin Rudd’s infamous “kitchen cabinet” – what a bunch of disasters those four dreamt up for us, and we are still paying…..)

Back to you, Nigel:-

Now if you only negatively gear new homes you end up with investors mainly buying house and land packages in outer areas of our major cities, would this not increase demand of these homes and infact push the prices up.

Hmm, I am not so sure – certainly, the outer suburbs do have a cheaper cost, but with precious little land, likely little Growth either. As an Income property, these might still work – but hey, buying new from a developer will mean there won’t be too many “bargains” unless the bottom falls right out of the market. No bargains means less investors….. but then, what are they doing? All in shares???? Or art? Gold?

I fall back on my note #6 !!!

Guess I will just pray for a Coalition win !!! ;) The alternative would be way too ugly,

Benny

Hi Nigel,

If the political parties are serious about helping first home buyers perhaps they could allow negative gearing say for the first 5 or 10 years. That way the interest at least would be tax deductible.

Hmm, that could make sense !! And might be far less damaging than turning the neg gearing applecart upside down. Of course, this INCREASES the cost to Govt that Labor were trying to cut.

And another thought struck me too – they talk of “negative gearing” as the big bad bogey !! But hey, have they considered that negative gearing is not the only way to save Tax !! e.g. anyone owning rentals, even if positive geared, are able to utilise the depreciation and other “non-cash” deductions to save on the Tax they pay. Like, if their property is positive geared by $50 a week, then they would be looking at paying Tax at their Marginal Rate on $2600 a year. But then, they CAN use the depreciation schedule to reduce those profits, thus paying less (or no) tax – just like negative gearers can….

So it is positive geared as well as negative geared investors who will lose out, thus markedly affecting the rental market.

Grand-fathering will save any EXISTING investors from harm, but a change that affets BOTH negative and positive geared investing will have far bigger consequences than Labor have considered. Labor had better take a cold shower and think again.

C’mon the Coalition !! ;)
Benny