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Paddles B'mere said..
It's a tough one to call I reckon. The government strategy from back in the day was to make housing purchases attractive to investors with negative gearing and to make new houses even more attractive with the depreciation of a new fitout. They hoped that all this buying would increase supply and the suppliers would simply make more houses for the market so everyone had a home (whether they owned it or rented it). Low interest rates for local investors, ease of access for foreign investors and first home buyer schemes have propped up pricing and created an artificially inflated market value that hasn't achieved what it set out to do in the first place. The government are locked in now, anything they or the RBA do could trigger a collapse and we will have our very own financial crisis so whatever they do needs to be softly softly. It's hard not to argue that less investors/buyers would drop the market values, but how do you do it without adversely affecting thousands of people? Maybe you're right Harrow, dump negative gearing and also dump CGT.

I thought NG was meant to be a tool used to increase the housing supply, i.e. new housing. Unfortunately it seems to have been applied to a lot of existing housing, which is non-productive unless it also influences the demand for building new houses.

The period where they removed it and saw rents increase was just unfortunate timing.

Pushing NG for new houses only probably would have avoided this speculative boom. People would plow money into new housing only, and when that reached a point where rental returns were marginal, it would slow down.

Unfortunately letting this speculation continue has lead to the chance of it toppling down and leading to disaster.

Cue the Labor government getting into power and being blamed for this....

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FormulaNova said..Unfortunately letting this speculation continue has lead to the chance of it toppling down and leading to disaster.

Cue the Labor government getting into power and being blamed for this....

Paddles B'mere said..
It's a tough one to call I reckon. The government strategy from back in the day was to make housing purchases attractive to investors with negative gearing and to make new houses even more attractive with the depreciation of a new fitout. They hoped that all this buying would increase supply and the suppliers would simply make more houses for the market so everyone had a home (whether they owned it or rented it). Low interest rates for local investors, ease of access for foreign investors and first home buyer schemes have propped up pricing and created an artificially inflated market value that hasn't achieved what it set out to do in the first place. The government are locked in now, anything they or the RBA do could trigger a collapse and we will have our very own financial crisis so whatever they do needs to be softly softly. It's hard not to argue that less investors/buyers would drop the market values, but how do you do it without adversely affecting thousands of people? Maybe you're right Harrow, dump negative gearing and also dump CGT.

.....

I wouldn't be surprised if a property price crash / financial crisis or recession hits just after Labor comes into power, just like last time....

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FormulaNova said..

I thought NG was meant to be a tool used to increase the housing supply, i.e. new housing.

Even if it did that to an extent, the simple fact is that it favours those in the upper income bracket. The rich get richer.

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Adriano said..

FormulaNova said..Unfortunately letting this speculation continue has lead to the chance of it toppling down and leading to disaster.

Cue the Labor government getting into power and being blamed for this....

.....

I wouldn't be surprised if a property price crash / financial crisis or recession hits just after Labor comes into power, just like last time....

That's what I think too! I think we need to call that out, just so that when it happens we can point out what actually happened and in what order.

I know the GFC was something that was pretty much out of left field for whoever was in power at the time, but I do wonder about the relationship between left-leaning governments and difficult economic times.

Is it general dissatisfaction that make people vote in a left leaning government, or is it the left leaning government in power that makes investment dry up?

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Harrow said..

FormulaNova said..

I thought NG was meant to be a tool used to increase the housing supply, i.e. new housing.

Even if it did that to an extent, the simple fact is that it favours those in the upper income bracket. The rich get richer.

Tell me about it. EVERYONE where I worked before was buying an investment property. Some of them weren't even really sure why, and knew that 'somehow it reduces your tax'. I think you could wrap up the majority of housing ownership in Sydney in a small percentage of the population.

According to what I have been reading there is a huge number of property and non property owners planning their exit strategy from Sydney.

Sydney Harbour is one of the most beautiful places in the world. Unfortunately it has Sydney sitting on top of it.

The Brisbane River is similarly cursed with Brisbane sitting on top of it.

Woe is the plight of the vagrant sailor seeking a place of quiet anchorage and repose.

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FormulaNova said..That's what I think too! I think we need to call that out, just so that when it happens we can point out what actually happened and in what order.

Adriano said..

FormulaNova said..Unfortunately letting this speculation continue has lead to the chance of it toppling down and leading to disaster.

Cue the Labor government getting into power and being blamed for this....

.....

I wouldn't be surprised if a property price crash / financial crisis or recession hits just after Labor comes into power, just like last time....

Then of course if it does happen, the usual LNP politicians and their supporters will blame the incoming government for everything.

Hey FN, classic scenario of how negative gearing can be manipulated by people it was never intended to be for:
- you're an executive that busts his/her @rse till all hours of the night in a capital city and you earn$250k/year
- you buy that lovely little beachfront shack you always wanted for $1.2m
- the shack is in an outlying area so rent is worth eff all and you rent it out at the ridiculously low market value which gives a large operating loss
- your losses are only worth 55c in the dollar to you because they're all negatively geared against the highest tax bracket
- you retire, sell up your inner city apartment or house and move to the beach and don't pay CGT
- you live happily ever after and don't give a rat's about real estate availability
- the end

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Paddles B'mere said..
Hey FN, classic scenario of how negative gearing can be manipulated by people it was never intended to be for:
- you're an executive that busts his/her @rse till all hours of the night in a capital city and you earn$250k/year
- you buy that lovely little beachfront shack you always wanted for $1.2m
- the shack is in an outlying area so rent is worth eff all and you rent it out at a ridiculously low market value which gives a large operating loss
- your losses are only worth 55c in the dollar to you because they're all negatively geared against the highest tax bracket
- you retire, sell up your inner city apartment or house and move to the beach and don't pay CGT
- you live happily ever after and don't give a rat's about real estate availability
- the end

I meet these people all the time.....they're the norm, not the exception.
They also usually die of cancer at a relatively early age. Is it karma?

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Adriano said..

I meet these people all the time.....they're the norm, not the exception.
They also usually die of cancer at a relatively early age. Is it karma?

No. Karma is what people tell themselves to make them feel better about someone else getting the easy life.

For everyone you meet that you think that deserves a tough life, there will be heaps more that got a cushy life and may be a nasty person, by random chance.

It might be those personality types you talk about that are more the type to see an architect about building a new beach front house. The nice people are probably too nice to be cut-throat enough to succeed? I know in the workplace that often the nice guys may not finish last, but they very seldom finish first.

In my experience anyone who earns that sort of coin gives their pound of flesh to do so, I don't begrudge anyone who works hard and makes a good living, likewise I don't begrudge anyone taking advantage of a loophole to further their wealth. The problem I have is that the "holes" in the plan have been well known for a long time and nothing has been done about it by many governments either red or blue.

It's not the cynic in me but the realist that tells me that when these "holes" appeared on the planners spreadsheets 33 years ago their natural state of avarice caused their tiny hearts to miss a beat when they realized what sort of profits were to be made when the real estate markets went through the roof.

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Paddles B'mere said..
In my experience anyone who earns that sort of coin gives their pound of flesh to do so, I don't begrudge anyone who works hard and makes a good living, likewise I don't begrudge anyone taking advantage of a loophole to further their wealth. The problem I have is that the "holes" in the plan have been well known for a long time and nothing has been done about it by many governments either red or blue.

The sad thing is that I think people think it is 'a right'. One of my work colleagues was telling me that he would not vote for a party that were to remove negative gearing as he deserved to be able to use it.

I didn't start to argue the point with him, as he is just one of many that think the same way and any equity in housing affordability is not his problem.

A sales guy that I worked with also decided to buy a few investment properties as his key to retiring early. I am not sure it will work out for him, but had he done the same thing 10 years ago, it probably would have.

I have come up with this idea that maybe to avoid the political hazards of removing negative gearing, the government should extend the benefits of it to owner occupiers or even just first home buyers, in order to level the playing field. In a way a lot of people are doing this anyway by buying houses to rent out and living in someone else's rental.

I think the restrictions on investment loans is going to cut out more demand than people assume. In the past a lot of colleagues didn't worry so much about the cost of the loan, but when it becomes more expensive AND they think the market is ramping down, it becomes far less attractive without the almost guaranteed windfall capital gain at the end.

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japie said..
It's not the cynic in me but the realist that tells me that when these "holes" appeared on the planners spreadsheets 33 years ago their natural state of avarice caused their tiny hearts to miss a beat when they realized what sort of profits were to be made when the real estate markets went through the roof.

I disagree. When I bought my house in 2001, interest rates were just 5%, and housing didn't really seem to be such a big deal then. People bought a house when they wanted to.

When I first started looking in 2000, I think the first home owners grant had come in, and when interest rates were relatively low, it seemed a good time for me to buy. The market wasn't that great, and I remember that a lot of the houses I looked at had problems and there were not that many great houses available. To cap it off, the banks were quite miserly in what they would lend you.

Other than the occasional person I met that had bought up houses, and usually with a foreign background, housing wasn't such a big thing.

Then something changed. I don't know what it was, but maybe it was the home improvement programs. Things started to warm up and people thought they could make money out of housing. A couple of years later, people were "buying investment properties" all over the place. An auction nearby had a heap of people competing for a rundown house, but interest rates were 3 or 4 percent higher than they are now, so it wasn't crazy.

Then the GFC hit, and things froze for a while, and then interest rates fell. So the property market seemed to get a second wind. I think that if the government hadn't done such a good job at this time, things would have been different, but instead you got people thinking all was good with the world and bonus low interest rates.

So, we got two housing booms in a row. I don't think too many people would have thought that Australia, with all this vacant land around, would have one of the highest property prices in the world. But it did.

Highest land prices to be precise...not property.

Oh and you completely misunderstood my drift about the people who work their arses off to afford everything. They're getting cancer because their priorities in life are all wrong. They work their arses off, have lots of property and possessions but end up with cancer at 50 anyway.

Negative gearing can't cure cancer.

^^ My misunderstanding, and agree with you because I do know people who have done the same and it's kind of sad, all those resources and reduced quality of life to enjoy them.

Yep. Thanks.

Formula made the mistake of jumping to the conclusion it was clients and then made it personal....karma again...

I have witnessed (men usually) who have spent their life working their arses off, have all the toys, trophy wives and nice houses and then when the big C or the heart attack hits in their fifties, all of a sudden their priorities change.

Of course it's too late by that point, because no one can re-live their lives and get their priorities right retrospectively.

In that situation, health is more valuable than a lifetime of negative gearing, BMW's and voting for Liberals.

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Adriano said..
Highest land prices to be precise...not property.

Oh and you completely misunderstood my drift about the people who work their arses off to afford everything. They're getting cancer because their priorities in life are all wrong. They work their arses off, have lots of property and possessions but end up with cancer at 50 anyway.

Negative gearing can't cure cancer.

Okay, colour me confused. I don't think people get cancer any more because they work hard or they lay on the beach. Is that what you are saying? I don't think science has found any link between stress, working hard, or lazing around, together with cancer. Maybe with heart disease or strokes, but I don't think there is that link with cancer.

I do agree with you though in that it is important (at least for you and I) to try and get your priorities right, (what ever happens to be right for you), when you can, as you never know what is around the corner. One of my class mates died from cancer in her late thirties, and I can't imagine anything about her life that would have made you think she was more likely to get it.

So, if you are saying that sometimes trying to build up wealth by working too hard at it can sometimes end up a waste, yes, I believe that to be true.

As for your point about land prices versus property prices, I don't understand. They are linked. Either directly because of the need to acquire the land to build the housing, or indirectly as your workforce is more expensive as they need to pay rent or a mortgage to live in the area that they work. At least around here, there is not that much difference between freestanding houses and townhouses, and apartments as far as price.

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FormulaNova said..


When I bought my house in 2001, interest rates were just 5%, and housing didn't really seem to be such a big deal then. People bought a house when they wanted to.

When I first started looking in 2000, I think the first home owners grant had come in, and when interest rates were relatively low, it seemed a good time for me to buy. The market wasn't that great, and I remember that a lot of the houses I looked at had problems and there were not that many great houses available. To cap it off, the banks were quite miserly in what they would lend you.

Other than the occasional person I met that had bought up houses, and usually with a foreign background, housing wasn't such a big thing.

Wow. You can't have been living in Sydney if that is your recollection. Property had been an obsession in Sydney for at least a decade by then. We bought our first house in 1999, sold it in 2003 to buy and move into our current house. The price tag on that first house had grown over 50% in 4 years. The First Home Owners Grant (in reality a "home sellers grant") was brought in to "make housing more affordable for first home owners". Does that sound familiar? The end result of the FHOG was an increase in house prices (well... derrr)

I met people in the early 90s that were already well and truly onto this property lark. Multiple investment houses. Negatively geared. "Never pay the house off. You'll end up paying too much tax! Just use the equity to get another". I knew quite a few people that were in the habit of buying places, doing them up, flipping them a few years later. Common BBQ talk? Property sale prices...

This obsession with property is nothing new, at least in Sydney.

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nnnbrewery said..

Wow. You can't have been living in Sydney if that is your recollection. Property had been an obsession in Sydney for at least a decade by then. We bought our first house in 1999, sold it in 2003 to buy and move into our current house. The price tag on that first house had grown over 50% in 4 years. The First Home Owners Grant (in reality a "home sellers grant") was brought in to "make housing more affordable for first home owners". Does that sound familiar? The end result of the FHOG was an increase in house prices (well... derrr)

I met people in the early 90s that were already well and truly onto this property lark. Multiple investment houses. Negatively geared. "Never pay the house off. You'll end up paying too much tax! Just use the equity to get another". I knew quite a few people that were in the habit of buying places, doing them up, flipping them a few years later. Common BBQ talk? Property sale prices...

This obsession with property is nothing new, at least in Sydney.

Yeah? I don't recall it being such a big thing. I did work with a few people that bought property, but nothing like it is the obsession now.

I moved out of an apartment to move into my house, and the owners had tried to sell all of the 8 apartments in the block a few years earlier in about 1998 or maybe 1999. They were asking for around $200K for each, and they couldn't sell all of them. The top floor sold, but the ground floor ones were harder to sell off. That price, for a huge 2 bedroom apartment with a tandem garage, seemed like a bargain only a few years later, but at the time 'meh'.

The house I bought had only been bought about 2 years before I bought it. In that time, they made maybe 10% before costs. The place was for sale for quite a while before I bought it.

Maybe it was different parts of Sydney, but I wouldn't be surprised that the majority of the increase in price you saw was from 2001 til 2003. I do agree with you, the FHOG just added $15k or whatever to the price. Its scary that it was so long ago I can't remember if it was $7K or $15K! I was just lucky enough to get into it after the FHOG was available, but before it pushed the prices up. Honestly, at the time, the low interest rates and the FHOG hadn't yet ignited the buying frenzy that came later.

There is nothing wrong with negative gearing...consider yourself as a company. You may choose to work for a salary, or work for yourself etc...... fine.

A company can start up a new business and it's expenses can be deducted...so why can't a individual have the same benefits?

There should never be a reason for capital gains tax discount.

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FormulaNova said..



Yeah? I don't recall it being such a big thing. I did work with a few people that bought property, but nothing like it is the obsession now.

I moved out of an apartment to move into my house, and the owners had tried to sell all of the 8 apartments in the block a few years earlier in about 1998 or maybe 1999. They were asking for around $200K for each, and they couldn't sell all of them. The top floor sold, but the ground floor ones were harder to sell off. That price, for a huge 2 bedroom apartment with a tandem garage, seemed like a bargain only a few years later, but at the time 'meh'.

The house I bought had only been bought about 2 years before I bought it. In that time, they made maybe 10% before costs. The place was for sale for quite a while before I bought it.

Maybe it was different parts of Sydney, but I wouldn't be surprised that the majority of the increase in price you saw was from 2001 til 2003. I do agree with you, the FHOG just added $15k or whatever to the price. Its scary that it was so long ago I can't remember if it was $7K or $15K! I was just lucky enough to get into it after the FHOG was available, but before it pushed the prices up. Honestly, at the time, the low interest rates and the FHOG hadn't yet ignited the buying frenzy that came later.

Maybe I used a bit of poetic license :) There was a fairly big recession in the 80s after all (some massive constructions around Sydney stopped dead during the recession and remained as untouched excavation sites for a decade). I think my recollections above are more mid to late 90s than early 90s now I think of it. FHOG was 14K, then reduced later to 7K from my hazy memory. I missed out.

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Agent nods said..
There is nothing wrong with negative gearing...consider yourself as a company. You may choose to work for a salary, or work for yourself etc...... fine.

A company can start up a new business and it's expenses can be deducted...so why can't a individual have the same benefits?

There should never be a reason for capital gains tax discount.

Well yes, but only if the company is profitable in other areas.

However consider a company which incurs an overall loss each year. The losses are carried forward until there is profit to soak up those losses. If the company never generates a future profit, it's likely that those losses will never be used. The law is strict regarding how a company may use past tax-losses.

It seems reasonable to treat loss-making investments in a similar fashion. Quarantine the losses to that activity.

If you want to ease the housing shortage in Syd and Mel especially ?Include the value of the house in assets for aged pension qualification.
You will have a selling bonanza with those full or part pensioners in $mil+ houses downsizing and investing the balance in income returning investments.
The crap about "but it is the family home and has memories " is bs .As soon as mum and dad cark it jack and Jill will have it on the market .
So the reality is if you have a mum and dad in a $1 mil + plus house you don't want to reduce the value .Do You.

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Bananabender said..
If you want to ease the housing shortage in Syd and Mel especially ?Include the value of the house in assets for aged pension qualification.

Such a softy, you need to watch Logan's Run.

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Bananabender said..
If you want to ease the housing shortage in Syd and Mel especially ?Include the value of the house in assets for aged pension qualification.
You will have a selling bonanza with those full or part pensioners in $mil+ houses downsizing and investing the balance in income returning investments.
The crap about "but it is the family home and has memories " is bs .As soon as mum and dad cark it jack and Jill will have it on the market .
So the reality is if you have a mum and dad in a $1 mil + plus house you don't want to reduce the value .Do You.

I think that's pretty unfair. Even if its a $20M house, why should they have to sell it just because someone has decided that its above a certain price. There must be tens of thousands of pensioners out there that have a family home that has appreciated to a crazy value, yet they want to live there until they die.

My parents bought a very basic house in the 80s and now its worth a lot more than they paid for it. They would still need to buy another house to live in or rent one, so why should that value be included in their assets test? Its not generating an income and its very easy to tax the value when they die or when they or the estate sells it.

I think reducing the benefits for negative gearing has way more merit than taking a family homes value from a pensioner. Even if its a rich couple living on the Harbour, why should this matter?

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Harrow said..

Bananabender said..
If you want to ease the housing shortage in Syd and Mel especially ?Include the value of the house in assets for aged pension qualification.

Such a softy, you need to watch Logan's Run.

Let them get at least a little bit older so that they are easier to catch. We can then move to Soylent Green as an answer to food shortages.

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FormulaNova said..

Bananabender said..
If you want to ease the housing shortage in Syd and Mel especially ?Include the value of the house in assets for aged pension qualification.
You will have a selling bonanza with those full or part pensioners in $mil+ houses downsizing and investing the balance in income returning investments.
The crap about "but it is the family home and has memories " is bs .As soon as mum and dad cark it jack and Jill will have it on the market .
So the reality is if you have a mum and dad in a $1 mil + plus house you don't want to reduce the value .Do You.

I think that's pretty unfair. Even if its a $20M house, why should they have to sell it just because someone has decided that its above a certain price. There must be tens of thousands of pensioners out there that have a family home that has appreciated to a crazy value, yet they want to live there until they die.

My parents bought a very basic house in the 80s and now its worth a lot more than they paid for it. They would still need to buy another house to live in or rent one, so why should that value be included in their assets test? Its not generating an income and its very easy to tax the value when they die or when they or the estate sells it.

I think reducing the benefits for negative gearing has way more merit than taking a family homes value from a pensioner. Even if its a rich couple living on the Harbour, why should this matter?

If the CGT exemption was removed for a person's residence, then that kinda fixes the problem.

Otherwise, why should the tax payer fund the retirement of an asset rich person, simply so that they may pass that wealth onto their beneficiaries?

What's the difference between:
- self-funded retiree who rents and has a $2m share portfolio, and
- Centrelink recipient who chooses to own a $2m house instead?

The difference is that the tax payer supports the homeowner, and the owner of the share portfolio is the tax payer!!

What Bene 313 said PLUS .
with the ever reducing interest and dividends in Aust. it is becoming very attractive for the self funded retiree to sell their shares buy a $20 mil. house go on a full pension ,receive more than the investments return and leave a nice package for the kids.
effect
house houses start going up again and you pay their pension.
There are thousands looking at this since tightened up things on pension qualification and what was said about franking credits.
trust me??

I could be off the mark here, but I don't believe there's much competition between first home owners and investors in the $2m property bracket ..............

In fact, using a tax break to entice a retiree (who can afford to do it of course) to remove themselves from the lower/mid price brackets of the housing market or from the rental market will reduce competition in those markets, reduce prices in those markets and make way more economic sense.

The guy with the $2m share portfolio is possibly not going to rent a $450/week house in suburbia either, it won't be the lifestyle choice he's after. So he will be renting a McMansion that's negative geared by another high income earner and supporting the tax minimisation strategy of that high income earner. So whilst the renter with the shares might be paying tax on his share income (that's not in his super fund) he will be supporting someone else avoiding paying tax by using negative gearing on high value real estate.

There are some superannuation tax breaks available for retirees to "downsize" from their family home that make economic sense. The plan is to lure empty nesters out of a family sized house and into something smaller to make their old place available to the market for another family.