Is The Government Doing a Good Job around Housing Affordability?

The more I read the news, the more I think that the current government is doing nothing for 'anyone' on housing affordability (yes I know rates are part of the problem). I also believe that there is a mild form of 'cronyism' that has polluted our debate around housing affordability. I sometimes think that Scott Morrison is still working for the property council of Australia and has not realised that he is treasurer. I don't even think that the most loyal liberal supporter actually believes he is doing anything about the housing affordability debate besides talking in circles!!

(Rant) His latest attempt at putting more money into the housing market by freeing up super contributions of younger people is so transparently poor that economists and some in his own government are unable to support this. Now if housing was more affordable I think that it would be a good idea to free up money for young people, but at the current time this will just be a transfer of wealth to developers with little hope for growth in the short term.

I believe in abolishing negative gearing and reducing the CGT discount but let's have a debate around all the options. More importantly lets make it fair so that we don't crash the housing market. Let's reduce the incentives slowly to avoid a crash.

I am keen to know what other people think!!!

Do people believe that prices will continue going up? (I don't)
Do people believe that housing is a good investment now? (I don't)
Do people believe that Scott Morrison is the right person to right the imbalances and make the right choices for the country? (I don't)
Is there a way of changing policy without waiting to vote out the liberals (and I am sure that this will happen in the next election.)?
How can we force the governments' hand? A politician once said that to enable democratic process, people need to get organised? How does one do this?

It would be great if buyers would exit the market. Normally price is a natural deterrent but yet there are still large amounts of buyers out there who think they will miss the train. Unfortunately it is the first time buyers who will really pay the price for entering the market at the wrong time, less so people 'shifting' from one house to another.

I would appreciate any thoughts!

EDIT

Anybody interested in who used negative gearing should read.
http://www.abc.net.au/news/2016-04-26/negative-gearing-by-oc...

Here is an article about our politicians.
http://www.abc.net.au/news/specials/curious-canberra/2016-05...

Comments

        • -2

          If it is so concessional why don't you do it yourself?

          Start small, something you can afford, positive or near positively geared like I did. I made the sacrifice of renting and keeping as an investment to hopefully get ahead.

          Think outside the box, consider other postcodes outside Sydney or Melbourne.

        • +1

          Any salesman would say buy low, sell high. Property upside growth is limited currently so buying into the market would be foolish no matter what the tax incentives.

          ALSO Negative gearing only works when capital gains offset rental income. You get the tax benefit of only paying tax on 50% of your gains. So long as it goes up, you will do well. I believe that will end within the next year or so.

    • Why is it the responsibility of the government to make investing in houses easier? Is it negative gearers 'right' to be given tax discounts to buy homes to profit from, that others could buy to live in?

      Yeah nah, just stop.
      Forever.

  • Restore interest rates to historically normal levels. Problem solved.

    • GFC II?

    • say what you propose happens tomorrow…

      a gradual decrease in property prices over the next 6-12 months because there is more properties on the market because people cant afford their mortgages. those that cant afford mortgages would likely be the working mums and dads of the world. not the suit wearing, high paid executive who has 6 properties in their portfolio, which he will sell a couple to offset the mortgages of the others

      all the sudden there is abundance of slightly cheaper property in the market… like a sale of anything, people that have disposable income or the wealthy start buying the property because they can, and because they know it will increase again..

      what matters is what percentage or how low will the prices of properties need to be in order for young first home owners to enter the market. 10% or 20%.
      the median house at the moment in Sydney is $1mil. even a $800K that's a modest $160k deposit. which I can confidently say not a lot of first home buyers will have,

      so high interest rates the first home owner cant afford mortgage repayment because the rate is too high even though the price of the property comes down.. and this will only be for a short while and then in 2 years time we will be in the exact same position except we have higher interest rates, housing affordability is still non existent and young buyers are still locked out of the market.

      people with money will always wield that power. its unfortunate that this is the case,

  • -1

    If you look around the world, Australia property is still not the most expensive.

    Do people believe that prices will continue going up? Yes I do.

    Australia property is still considered cheap for many overseas investors. Go to VIP launch of off the plan apartment, you will see how hot it is.

    I wouldn't worry what the government would do to help affordability. But I know what I can do to make it affordable: start savings, find ways to earn more money, and buy the property as soon as you have enough to get the home loan. Forget about getting a dream house. Get an apartment or a unit. It's better to put your money for bank interest in home loan rather than using money for the landlord to pay his/her investment.

    The government doesn't want the property market to crash as it would crash the economy like what happened in the US.

    • +3

      Not most expensive? Technically correct.. Sydney is only the second most expensive LOL!

      "Off the plan" apartment -> that's because that's all overseas investors can buy now, a partial pathway to residency and a way to offshore corrupt money.

      The US market crashed because they borrowed and lent too much money to people who couldn't afford it. We're at literally breaking point in terms of loan affordability and banks are STILL lending!

      So:
      Rental yields rock bottom.
      People's income static.
      Interest rates increased for investors / interest only loans
      House prices….. still up? This madness has to stop - now. Otherwise we will have a US / Japan style crash.

      • You're right about OTP being a gateway for residency for foreign rich guys - but what do you think will happen once these rich people get their PR? They'll buy another 5, this time established house with land.

    • +2

      Property is relative to disposable income. New York and London have better jobs, therefore higher disposable income, higher density and higher prices.

      Sydney is expensive relative to disposable income. The ratio of private household debt to disposable income is also an indicator of how expensive something is. Australia has the 2nd highest level of private debt in the world after the Swiss.

      • So far we only compare the median house/unit price to disposable income. It would be interesting to compare median price per square meter to disposable income. And i don't think median income of london is higher than sydney or melbourne.

    • +2

      "Anyone who thinks negative gearing is a bad thing for the economy and should be removed has absolutely 0 idea how an economy works."

      then

      "other wise i dont really care about the 'rise in house prices' i think it is great the government should be looking at increasing wages in line with house prices because that will improve affordability."

      and

      "As for the backlash against Scott Moro's super idea i think it is a decent idea"

      If you think severely damaging peoples long term retirement funds and high inflation are good for the economy you might want to reconsider that maybe you have "0 idea how an economy works".

        • +2

          But these people don't have money, they have debt.

          And people do still buy property to rent without crazy tax conccesions. They are just more prudent and sensible with their choices and so prices don't have the NG added tax baked into the price.

          The government is encouraging property investment. Theyre throwing the kitchen sink at it. Shame to tax payer will have to wash the dirty dishes without a sink when it all goes pear shaped.

          It makes zero sense as it detatches the true cost of an investment from its intrinsic value. It makes zero sense because people shouldn't be encouraged to speculate with money they dont have (In a casino I wouldn't care but time has proven that with property gambles the tax payer ends up footing the bill)

          You say most people will aim to own a family home, true I would say most people would, If the cost of that family home is cheaper (closer to intrinsic value) then they can own it quicker and have more disposable income sooner. Paying 30 years of intrest isn't a natural investment.

  • +2

    My solution. Remove the GCT discount for non-primary residences, effective immediately, for all properties.

    It's silly that this exists, it does nothing but fuel ongoing property price rises. If people sell as a result of this the government gets some nice revenue they desperately need instead of giving massive tax breaks to millionaires. People would then have to consider whether the rents plus now taxed capital gains, made bidding higher worthwhile.

    If you were going to touch negative gearing you might as well remove it from all assets, and immediately. Grandfathering in changes like that just maintain the inequity.

    Honestly, I already own a property, but I would not buy one now to live in if I didn't already have one. Especially not in Sydney. And I would be TERRIFIED if I had one that I was renting out and had negatively geared. Prices simply can't keep rising while rents and incomes don't. Renting is now so much BETTER for you financially than buying in so many places, the utility value of houses isn't there to support the capital value. And when the market value exceeds the utility value by that much, the prices will inevitably correct. The government doesn't need to do anything for that to happen, but the seem intent on kicking the problem down the road 6 months at a time so the problem just gets worse.

  • +1

    Given Australia's spread of major cities and lack of adequate transport networks, people are somewhat forced to live within a certain radius of a city in order to maintain a job. This country is not like Europe, Japan, or America where you're no sooner 40km away from 'City A' that you're starting to be closer to 'City B'. For those places, housing is largely inconsequential to job prospects since a majority of jobs have an even distribution at regular geographical intervals. Conversely, halfway between two major job cities here is along the lines of a 5 hour drive in either direction.

    Because of this, housing close to major cities is becoming a borderline necessity much like access to water and electricity. You can't keep pushing people further and further out without the jobs following suit. There are plenty of sooks that don't want to live outside of a very cushy comfort zone, but these are only a minority of people and establish a strawman to distract from a very real problem.

    I feel that one of two things needs to happen:

    1) Access to the city from further distances must be made easier. A high speed rail network equal or greater in quality than the Japanese Shinkansen would be necessary. A 40 minute commute from the suburbs to the city along the normal rail network will be matched, with respect to time, by a journey from out of town that would normally require a 2-3 hour drive. This will allow people to establish and maintain careers whilst accessing affordable housing outside of the city.

    2) The Government should restrict home ownership to a maximum of 2 titles per person (i.e your name can only be on two titles at any given time). This will still allow for rental properties, with a person living at home whilst renting out their other property. It will also still allow for a primary residence + holiday home. Such a thing should be given a timer, such that in X years, if people own more than 2 homes then any excess are immediately put on the market. As I said above, affordable housing close to work is becoming nigh on a necessity to quality of life. Anyone forced to sell needs to toughen up and finally invest their money in places that might contain a bit of risk, which is essentially the definition of investments bar the property market in recent years.

    Option 1 is the better long term option but will take a long time to implement. Option 2 will be much faster, but I'm no economics expert so have no idea on what kind of ramifications it might have on the Australian economy.

    • Hi

      I think option 1 could be implemented within few years but governments of the day aren't willing to do this without a sustainable business case unfortunately. Government should realise the initial losses but the benefit its would provide.
      I question option 2, as there are difficulties the government would face if trying to bring this into law. i.e if you hold 10 acres of land, can you only build 2 homes on it? What if the land is near CBD? It'll may get people think twice before they consider developing and further restricting homes for people to buy/rent.

    • it's ridiculous the spread of housing in melbourne and the failure of the government to plan and build public transport networks (I'm talking trains - not buses) to meet the demands (now and in the future) of residents.

  • the government does not do a a good job doing anything except impose unnecessary taxes and create a web of bureaucracy. If I was a young person trying to save a for house in Sydney I would not bother unless I was earning a large salary and I was living with my parents for free. As if politicians or the government care about this issue. There are plenty of people buying houses every week so as long they are collecting their taxes they are happy.

  • I don't think the government has the capacity to resolve the issue of Housing Affordability. Simply put, it is up against the attitudes of the entire Australian population. Seems everyone wants to buy property, believe they won't lose money and are prepared to climb over each other to buy.

    Since the dawn of time, when something is limited and in high demand only those willing to meet the market price will be able to obtain that item. Real estate in 2017 is no different, only that it is more emotive because of the 'dream'. People are even willing to dive into big mortgages knowing they are at risk when the mortgage rates go up (the cycle will go up eventually).

    This sounds harsh but we are passed the times where a Postman can afford to keep a stay-at-home wife and 2 kids and buy a home within 15 kms from the City. People should accept that home ownership is no longer an option. Renting is not a bad thing, its just the Australian attitudes seeing it as inferior to ownership. If you save and invest the money saved from renting, you could be better off in the long run. right now in Perth, renting is better financially than buying.

    • and in the old days, uni graduates were guaranteed 110% finding jobs relevant to their degrees.

      these days.. a lot of engineers or scientists fresh grads (unless cream of the crop high achievers) spend their days doing checkout operator jobs or their evenings as night fillers at woolies or coles.

      • Haha
        I remember being told "C's get degrees". I was reminded time to time not to be too concerned about achieving a higher mark while getting my degree ~ finished in 2011
        Recently I was asked to join a interview panel to bring new graduates into my work place. More than half of the people we interviewed, I thought were a joke. The caliber of graduates we have being pumped out of uni, needs to improve.

        To the above comment about postman able to afford to keep stay at home wife with 2 kids and having the ability to buy a home 15km from the city. Unfortunately these roles which are considered labour intensive will continue to decline as we go into the future as the role will become more automated. Technology is changing this.

        People can still afford to buy, but 30-40 years ago, the postal worker may have bought a property in a low socio economic area considered to be 15km from the city. Now it's probably 50km from the city.

  • the govt can't satisfy everyone. media as usual will amplify the bad or bad sounding news.

    brisbane is still affordable. perth still reasonably good value. adelaide is still affordable. darwin is still cheap. hobart is even cheaper :D

    it is only those wanting to buy one in sydney or melbourne are complaining!!

    when the interest rate rises, i am sure things will cool down. borrowers crisis, likely.

    BIG crash… probably not for houses within 10km of sydney or melbourne cbd.

    world wide historical prices trend for properties near big sustainable busy cities (unlike mining based country towns) is always up, except japan which is cheaper than in the 80s due to shrinking population.

  • Putin, that's what we need.
    We need a strong leader like Putin to deal with this carnage.

    • Putin, that's what we need.
      We need a strong leader like Putin to deal with this carnage.

      If you want to place Australia back to the 1930s with a great depression whilst a few elites waltz around in a Rolls Royce then so be it.

      • We need a strategic thinker like Keating not a despot like Putin. Putin is all for self advancement. You just have to read the panama papers or about his mate who is the richest cellist in the world (Sergei Roldugin). BTW you don't get that rich playing an instrument.

        But point taken, we do need a stronger leader.

        • -1

          Serious face.

          A strategic thinker like Keating would be just sublime.
          Watching the interview series with Mr Green Pen … what's his name … Kerry O'Brien was simply wonderful.
          He wouldn't be faffing around with all this BS that the current crop call policy.

          Negative gearing very obviously needs to go, and it will go eventually, but the longer we wait, the harder it will be to ditch. You simply gradually ratchet down the benefit to limit overnight calamity. It's not rocket science, just like a carbon trading scheme is not rocket science - it's all been done before.

    • That's funny. Russia has a population roughly six times ours, with a much larger land mass, yet their economy is only slightly larger than ours.

      Whatever Putin has been doing over the past 17 years, it's not working very well.

      • Umm, not serious about Putin, but serious about Keating.

        • Keating was a great leader and a real thinker, but unfortunately didn't stick around too long as leader. He even tried rolling back negative gearing in 1985, something politicians don't have the guts to try today.

  • +2

    There are 2 factors driving unaffordability:

    1.) Negative Gearing: This is the dumbest idea introduced since the 1980s, it has resulted in idiototic people buying a property with a 5% deposit for the simple idea of renting it out and claiming tax deductions. Not only is this driving up prices due to the demand, but generally people would prefer to live next to landlords as they would usually take better care of the property and its surroundings than some renters.

    2.) Foreign Investors (mainly from Asia): These asswipes have no limit, they will purchase overpriced property anywhere their translator-realty agent tells them to do so.

    The problem is our retard government is too scared to abolish any of these points in fear of a 'property crash' when you define property crash its not actually a crash, it's an adjustment.
    Example, Person A thinks his/her home is worth 900K as that's what people around are selling similar homes for, we know the prices are inflated by ~20%, so the real value should be 720K

  • New housing is one of the most heavily taxed commodities there is. You want to build houses? Pay a development application fee to the local authority. Then pay them infrastructure charges. Pay GST on the land. Sit and wait for the Council to drag its heels and maybe even go to the Planning and Environment Court to listen to whinging NIMBYs complain that all these newcomers are ruining the neighbourhood. Pay some more operational works fees to the Council. Then sell the lots and pay some more GST. Pay some land tax to the state government. Pay some more GST on the sale value of the blocks. Pay some CGT. Then the buyer pays stamp duty to the state government on THE WHOLE SALE PRICE, INCLUDING THE INBUILT GST AND LOCAL GOVERNMENT CHARGES. After all, all these taxes (plus some carrying costs) need to get passed onto the end consumer.

    You're not only paying three sets of taxes, you're paying taxes on taxes on taxes.

    Housing is exactly as expensive as Australia's three levels of government desire it to be. Before the mid-90s, you didnt have to pay GST or much by way of infrastructure charges, and housing was cheap.

    • I think you make an important point around taxes, however I think that over the last 5 years there has been a lot of money to be made in property. The developers have had large profit margins and have become rich through their mark ups.

      From the AFR.

      "It's official: the most common path to ultra-wealth in Australia is property, with 50 of the BRW Rich 200 making their fortune from bricks and mortar."

      • You're not only paying three sets of taxes, you're paying taxes on taxes on taxes

        Whilst taxes contribute to the overall cost of housing, it does not contribute to a boom of hyper-inflated prices.

        Shitty loopholes that the government wont fix plus the above 2 points are the reason, in summary it's the government to blame.

      • The problem was when the GST was introduced, new housing attracted a premium of 10%, but established housing was tax free. The same with infrastructure charges, which increased the cost of new housing but had no effect on existing housing. Both these changes came in around 2000 which was when the housing bubble started to take off.

        The effect of these changes was to make it more attractive to speculate on existing housing rather than buying new. If you buy a house as PPR and renovate it you pay ZERO tax on the proceeds, other than stamp duty. Build new and you are paying taxes up the wazoo.

  • Reserve Bank of Australia should raise the cash rate as soon as possible. What are they waiting for? The US has already raised their rates.

    • +3

      Due to the dodgy way they calculate CPI (they do a dodgy rent calculation) where they essentially lessen / ignore the impact of housing costs on CPI, their official stance is: "Our job is to ensure that inflation stays on target [which I think is between 2.5% to 3.5%]. Since the CPI numbers are at about 3%, they won't raise rates.

  • +5

    I've said it a million times, but this government (and even labor) won't fix the housing market because it will cause a recession (a recession we have to have). But, if we were sensible and governed by people who looked more than 4 years into the future, this is what we should do:

    • Remove the CGT discount and go back to CPI adjusted discounting
    • Introduce a broad land tax and Eliminate stamp duty
    • Quarantine negative gearing
    • Massive overhaul of councils and council red tape, requirements, restrictions, etc.
    • Ignore all NIMBYs
    • Tighten bank lending practices and carry out an investigation into the current state of the mortgage market
    • Cut immigration back from it's record levels closer to OECD nation averages (which would still be higher than our recent historical average pre 2000)
    • Tax foreign ownership heavily
    • Prevent non-citizens from owning property
    • PPOR counted in means test for pensions and other benefits
    • Tax on empty houses
  • +2

    vote me as the next PM, then i shall impose 50% stamp duty for your 3rd property purchase (you may hold 2 at any time to help upgraders) if you are local and 60% stamp duty on any property purchase if you are not a resident. applicable to all properties within 50km of Melb and Syd cbd.

    The rest of the country is as normal because they are still affordable 🤓. Need to share the growth too.

  • +1

    This problem has been decades in the making and won't be fixed either quickly or through policy tweaks. For a very long time everyone has known that real estate is a smart investment, and if you do your 'homework' you will come out with both a capital gain, rental income, and tax benefits.

    How do you make even more money? Buy more property!

    What people are not realising is that we're pricing ourselves out of international competition by sinking so much money into housing, instead of investing in other areas of the economy.

  • +1

    Housing affordability is going to be ruinous to the this country. The more of people's paychecks that are going towards mortgages and rent the less money is going into the economy. I dont understand why people, and politicians, dont seem to understand this. So many people I know have already changed their lifestyle and tightened their spending solely because of the rising costs of housing. Myself, for example, I used to go out a couple times a week for coffee, or beers on the weekend. Ive cut all that out because rent has gone up a lot faster than my pay and something had to give. Thats money that used to be going into local businesses now just going into rent. And looking at the amount of businesses closing down and how quiet the cafes and bars are on the the main street of my town these days Im not the only one.
    Also, imagine in a few decades from now when we have huge portions of the population retiring without ever having owned a house and who wont be able to afford rent, what happens then?

    "Do people believe that prices will continue going up?"
    Yes, so long as Australians are forced to compete with Chinese millionaires who'll outbid them and let a house sit empty and exacerbate the problem, prices will keep going up.

    "Do people believe that housing is a good investment now?"
    Its a safe one. Even if the "bubble bursts" demand will stay so high that prices wont drop much if any.

    "Do people believe that Scott Morrison is the right person to right the imbalances and make the right choices for the country?"

    lol, god no. Someone whose main focus is protecting the investments of rich baby boomers and big business is not going to fix the housing crisis.

  • Hi

    I'm speaking from experience when talking about negative gearing and housing affordability.

    I negative gear 6 properties in Sydney - all within 50km from CBD in poor areas. I don't live in Sydney and have no interest coming to live in Sydney. I and my partner are in our early 30s,no kids. We are planning to move to coastal NSW in around 3 to 4 yrs time.

    I earn approx $80k pa but would be lucky to get a job in the city. My field is extremely competitive in the cities. My partner is on $55k pa and would also find it difficult to get a job even though she has a degree. She is looking to retrain as a nurse?

    I'm not sure how the banks enabled me to purchase these properties but used all my savings and everything I had to get these properties.

    I'm barely breaking and last year I spent approx $30k in maintaining the properties (doesn't include depreciation schedule) but received back $11k in tax. Additionally I spent another $12k in 'cash in hand' jobs.
    So for around $42k expense I received $11k back. Sounds great for some but imagine forking out $42k and taking a gamble with property prices.

    This year I have spent close to $30k. I still have more repairs to make but delayed as I can't actually afford to carry out due to getting married this year.

    I feel people spend more money on maintaining the property and are getting little reward. The reward most people think property investors receive is delayed gratification. If that's the issue, anyone can get this feeling by getting into the stock market.

    If NG is abolished going forward, all the rents would rise within few months. I want my properties to be tenanted as I can't afford to leave it vacant. It's difficult to get decent tenants. Within the city fringe, renters are at landlords mercy in regards to rent rise and repair issues. I own properties in the 50km zoning. I wish my rents covered my mortgage repayments.

    Going forward I will be buy more properties by saving and also buying in the 50-60km fringes as I can't afford to buy in the city fringe. I wish I could but I can't. If NG is abolished, rents would be higher as I have to cover my mortgage, rates and insurance.

    I have read examples of posters in this post who say tgeir family being able to buy within 10km radius in 90s but them earning more, can't afford to buy even in 20km. Everyone needs to consider, value of money has changed. Money has become cheaper due to interest rate, mining boom made many people we'll off in Australia - we are from Auckland, we didn't get the boom effect. If you are seriously thinking of wanting to buy a property consider buying where you can afford. There are plenty of cheap houses in regional Australia - Bathurst, Orange, Wagga Wagga etc…
    The attack on NG will leave all the regional and other cities other than Sydney and Melbourne areas, vulnerable.

    I can imagine many of the investors will put their homes under business acc and carry forward losses but continue to increase rents if things change on NG.

    My 5 cent 😊

    • +5

      Not sure why you would buy 6 properties with a combined income of 135k p.a. You placed yourself in a high risk situation and relied on the fact that NG will keep your bottom line above board. If all goes well for you, you get 6 properties at the end of the day all paid off with the assistance of taxpayers money. If NG is scrapped, people like you will be complaining that the government caused whatever the consequences are for you even though it was your choice.

      The banks allowed you to borrow enough for all those properties but it didn't mean you should or have to..

      • +2

        My guess is:

        Interest rates go up to historical norms, or maybe even less than that, Ottah is screwed
        Ottah or partner loses job, Ottah is screwed
        One or two properties vacant for too long, Ottah is screwed
        Properties fall significantly in value, or even stagnate too long, Ottah is screwed
        More major repairs required over the next couple of years, Ottah is screwed
        Ottah and partner have a child ($$$), Ottah is screwed (not by partner this time)
        Ottah has any large life expense come up such as medical, Ottah is screwed
        Negative gearing abolished without grandfathering, Ottah is screwed
        Capital gains discount removed or reduced, Ottah is screwed

        Sorry to say Ottah, I think you are screwed.

      • Hi

        When purchasing these properties you could easily get 5% interest off the property. Now it's more looking like 2% gross if you are lucky. Around 3 years ago, you could get lending up to 95% of the loan value. Now most banks are wanting 20%.
        In regards to NG, you need to remember I am only getting back between .32c to .20c per dollar I spend. If I couldn't NG, I would have to raise rents to cover the costs of repairs, insurance, interest etc…

        I agree I am close to being screwed. I am hopeful I can get through the tsunami which is on the horizon.

        • +1

          Hi Ottah, my scenario is similiar to yours- only with a single income, 5 properties which luckily mostly pay for themselves once the negative gearing tax return comes in. I dont make a profit, dont make a loss either. As a result the rent I set is reasonable and I dont hike it if the tenant is good and want to live in my place long term. A single guy has no use for a 3 bedroom apartment, its better served housing a family.

          What most folks don't realise is that negative gearing helps keep rent low, and most folks use it as a tool to get into positive gear circumstances where we actually start making money instead of bleeding it. Once we get into positive territory we start paying tax, so things balance out in the end. No one in their right mind want to be negative and losing money forever. Id jump on the pokies for that.

          Ottah, Theres a forum called PropertyChat you should check out. Has alot of good resources on figuring out exit strategies- hopefully the circumstances stay true for you and avoid the screw. Making losses each year is no fun.

    • Overleveraged investors are a key part of the problem.

    • If NG is abolished going forward, all the rents would rise within few months.

      What if they are grandfathered? You shouldn't be affected for your existing properties.

      Going forward I will be buy more properties

      Are you serious? Why would you do this?

      • Hi

        Think of it as health insurance, costs will only go up. I won't be affected initially but any chance to balance out my finances, I will take it. Most people will do anything they can to balance out their finances if they are bleeding cash from a properties or business. NG is great but again you are only getting back .20-.30c per dollar back. You still need to front up cash initially.

        Moving forward, labour govt proposal to only allow NG in newly built homes will either mean you will be competing with other buyers, properties close to the city - if a building company manages to snag a large land or buying 50-60km from CBD. It may help but we need to consider people will still be buying and selling properties in the city fringes but rents will rise faster as NG will be abolished for those properties. I imagine 5% yield gross will be a golden rule. NG will also affect people in Darwin, Perth and regional areas. Rents will rise much faster than inflation. I live in a small rural town in NSW and I'm expecting my landlord to increase my rent.

    • So for around $42k expense I received $11k back.

      This is the whole problem with people's interpretation of negative gearing, or their attitude towards it. Nothing was "received" back. You made a loss which caused your taxable income to be reduced. Nobody "gave" you anything. If the accumulated losses over years are not matched by capital gains when you sell, the money you lost stays lost forever.

      • +2

        My understanding depending on taxable income you get about 25 cents to 35 cents to the dollar you get back from your expenses. Even taking that into consideration you can deduct expenses such as realestate agent fee's, listing fee's, advertisement fee's, accountant fee's all as expenses. Although you're still losing 60 to 70 cents to the dollar. So negative gearing in of itself isn't that bad, the elephant in the room is investors being able to use capital gain tax discount.

        Actually if you graph house price index's with either state of territory you will find around 20 September 1999 with the 50% discount on the capital gain for individual taxpayers. That's when see all states and territories house price index's diverge from their historic long term trends.

        The elephant in the room isn't negative gearing, its CGT discount like scorpiovegas has said "If the accumulated losses over years are not matched by capital gains when you sell, the money you lost stays lost forever."

        So in summary. With negative gearing if you're investment is making a loss, your really only losing about 60 to 70 cents to the dollar (subject to expenses, and cost of accruing the asset). when it comes to selling the property you can deduct costs associated selling the asset (such as stamp duty, 2%/3% real estate agent fee's and commissions) from the sale and also receive 50% CGT discount slashing the tax payable by 50% instead being taxed fully at your income tax rate.

        Eg…
        Sale: 500,000
        Purchase Price: 400,000
        Expenses: 30,000
        Deduct expenses from sale: 100,000-30,000 expenses.
        CG: 70,000
        Apply CG Discount 50%: $35,000.
        CGT payable @ (30%) $10,500.
        Profit: 59,500

        Without CGT discount final take home profit would be $49,000

      • +1

        Hi

        To cool property prices, I do think CGT needs to be relooked at, more land needs to be released - I'm sitting on a property which is zoned incorrectly but is 400m from the trains station :/
        The rise in rates will show how many people are naked when the tide goes out ^.^

      • +1

        Hi

        It's difficult to fork out $42k cash and wait for capital gain to roll over your way after 10 years. I personally don't want to be forking out money for 10 years and have nothing in between. I consider property market similar to the stock market, getting dividends in between, topping up your holdings and hopefully you make some dime out of it at the end.

        As times get tougher, people will want to move to the city but with little to no homes available due to little investment in properties, it would become difficult for people in the city itself.
        We have found food, electricity, internet, petrol, transport is cheaper in cities than rural/regional towns.

    • It's an interesting point that people don't seem to appreciate. You get a tax benefit through negative gearing, but you are stimulating the economy with all the maintenance you do and other costs you pay. For every dollar injected into the economy, the government only subsidises your nominal tax rate of that. All the other industries that the government props up more significantly seem to be ignored.

      Housing affordability won't be fixed by abolishing negative gearing. If it would they'd do it. If it gets removed and investors leave the market and prices don't subside, what then? Public housing that gets trashed by tenants? It's not like being a landlord is a matter of sitting back and watching the money roll in…

      • Ah, the broken window fallacy. "stimulating the economy"…

        Uneconomical investments are uneconomical and should not be subsidised by the government.

        • Handouts are what the government is all about!

    • Sounds great for some but imagine forking out $42k and taking a gamble with property prices.

      That's the point. Your gamble, your losses. People shouldn't be gambling with such an important social asset, not to mention a completely unproductive. Imagine if every investor didn't buy a property cos they didn't appreciate as a cash cow and invested in something more productive instead. A lot more people might actually have a job, and more people would own a home.

      • If investors didn't buy homes because it's unproductive, not sure how you can establish new regional cities - Sydney: Liverpool, Paramatta, Penrith, Campbelltown as it would further pressure housing market in the CBD which would result in people putting more of their weekly wages into rent? Government would be slow to build new transport systems, commuting would be longer (if influx of people decided to buy in one area). Not sure how it would solve the issue.
        You need to encourage development for land stock to come to the market.

  • Absoloutely without question no. Negative gearing is basically evil, it's …. wow

    Nope
    Evil.

    • I think Ottah sums it up.

      They have geared themselves with very little buffer and through rising property prices have probably increased their net wealth. (I am assuming your property prices have increased.)

      Debt and higher prices combine in a time bomb which explodes when there is a catalyst such as
      * a credit crunch (liquidity dries up),
      * higher interest rates,
      * unemployment.

      Don't know when but it will explode sometime.

      • It may not sadly,……..

        1 word.

        China

        • agreed, that is a ticking time bomb with massive credit growth and lots of off balance sheet products (WMP's) that banks don't have to hold capital for (ie no coverage).

        • @ozzieblue: I actually mean them buying our property en masse. I want to angrily blame the Chinese but the reality is, it's our <extreme expletive, like you can't imagine how extreme> government allowing this to occur, they are a bunch of <see previous section>

          Detest, loathe, hate our government, they're <and again>

    • i assume you never had any sort of investments with loan?

      • +1

        Should not apply to housing, which should not be an investment.

        • -1

          Why not?

          The laws are there (not talking about NG but referring to things like the Residential Tenancies Act) to enable real estate as valid investment vehicle.

          Then when you consider the rise in value between 2000 and now + good rental returns, why wouldn't you consider it?

        • +1

          @tsunamisurfer: It's not a product which should be eligible for tax benefits, if you want to invest in it, fine - getting rebates, unacceptable, it's a basic right to be able to buy a place, not have the price influenced by rich people messing with the market.

        • -2

          @hamwhisperer:

          no. it is not a right to own a place.

          also not a right to be employed.

          if that is the case, we should all have the rights to live comfortably without working and live thru via welfare handouts.

          unless people are taught wrongly, as a student i had to study to pass exams. and study harder to be the top of the class.

          as an adult, work hard and smart pay off. and being able to buy a home is an achievement and not a right.

          it is also like saying graduates have the right to be employed despite having gpa of 1 and failing every subject at least once

        • @hamwhisperer:

          Let me clarify, firstly its NOT a basic right "to be able to buy a place". Home ownership is not a human right. If we were to get technical, no one has taken your 'basic right' to "to be able to buy a place", you still have the right to buy a place, just have to meet the equilibrium price.

          Secondly, there are no rebates for real estate as an investment vehicle.

          You've actually proven my original point in that when it comes to real estate, people get emotional (quote the Human Rights Charter). People also like to reference the rich or the privileged as some sort of villain, they are not. A lot of these investors were mum and dad investors too that took a gamble.

          The tax laws are quite consistent you can claim deductions on shares, negatively gear it as well. I don't support making NG the villain especially because it is only part of the issue.

        • +1

          @tsunamisurfer:

          well and better said than my comment :)

          indeed tax law cannot be arbitrary.

          all in all, people have the choice to move interstate to another capital city (yes it is risky and costly) and i have done it 2x.

          in fact, an article today said that Brisbane house prices have gone down the most since 2011. bargains to be had in Brisbane!

  • +2

    I may be wrong, and please give me your thoughts. This is my 2c.

    A business can contribute to an economy, drive innovation, employ/empower people. If the business makes a loss for X years, it can deduct the losses in the future. Eventually, if the business is not profitable, it will fail… and the market will cycle.
    VS
    Joe Blow can buy a house and rent it out with no intent for it to operate at a profit. He can upgrade air con… upgrade floors… etc and receives some rental income. He then gets a tax break. Problem is, his tax break is paid by Tim, who is working 44 hours PW but still struggles to pay rent, and pays tax at the full rate.

    I think Negative Gearing damages our innovation as a country whilst simultaneously shafts those who need help.

    • +1

      Agreed.

      Negative gearing increases the incentive to invest in houses over other investments. This inflates housing prices as the supply is fixed.

      It also means the people will not invest in real businesses that produce goods and services and employ people.

      • +2

        You can negatively gear all investments - but the banks don't lend at 5x the leverage as they do with property.

        • but the banks don't lend at 5x the leverage as they do with property

          Yes they do. With Margin Lending you can borrow up to 80% on the value of the share.

        • @Baysew:

          Yeah I know, but you have high interest rates and the dreaded "margin call" hanging over your head constantly. Can't pay the margin call? It gets sold from under your feet. Completely different kettle of fish.

        • @Jikx: I was only pointing out that banks do lend, which you now agree on.

    • <Joe Blow can buy a house and rent it out with no intent for it to operate at a profit. He can upgrade air con… upgrade floors… etc and receives some rental income. He then gets a tax break.

      Can you elaborate what tax break you are referring to? You've describes a series of event, but what is this tax break event?

      <Problem is, his tax break is paid by Tim, who is working 44 hours PW but still struggles to pay rent, and pays tax at the full rate.

      No sj2can, Tim is not paying for Joe. Joe is claiming a deduction to offset against his own income (and hence the tax he paid against that income). Tim does not exist in Joe's world.

      Furthermore, can you offer some clarity around what paying the full rate of tax is?

    • Business: Businesses can carry losses for years going forward, employ people, if it unprofitable business it would fail and close up shop but with employees losing their jobs.

      Joe Blow: Buy's a house, continues to make a loss, small rental income is coming ($500 p/w rent on a $1 mil mortgage with $50k mortgage repayment), upgrades aircon etc… and get a tax break from Tim?

      Like a business, Joe will claim loss on the property. Joe has sleepless nights when he realises his mortgage will increase from next month due to higher interest rate charges, tenants decide to default on the rent but have left the property in a mess. Total loss: $500 for average general wipe down, $800 to remove rubbish, 2 weeks to get someone organised.
      If Joe has a great tenants, he is still forking out $25k in mortgage repayments from his own back and paying water, rates, insurance on top and repairs. Already he is looking atleast $30k pa loss on the rental property.

      Joe goes to his accountant and shows $30k worth of losses for the year. The accountant will do some magic and get $9k back from ATO ~ around average 30c/$1 rate but lower if you have more losses. Joe is still forking out $21k in loss pa.
      No smashed avocado's (they are sooooooooooo good btw!), coffees on the weekend for Joe for a long time….

  • +1

    op should've made post "is the Govt doing a good job?"

    • +1

      Answer is no. NBN would have allowed people to work from home, decreasing the load on traffic by decreasing need to travel, and helped with decentralizing the city. This in turn may impact housing prices because proximity to city no longer matters. But they don't want that for the citizens. Can't let that stamp duty decrease now can we.. :/

  • I am a little concerned that abolishing negative hearing or anything related to moving the goal posts on tax. I much prefer that more is done to promote decentralization to regional areas. Maybe foreign investors should be only allowed to invest in regional areas rather than the capital cities. I was reading about the APVMA moving to Armidale. They should do this with each major government employer. Maybe they should also legislate a mandatory requirement that companies which have a high percentage of skilled immigrants (say 25% of their workforce) were obligated to move to a regional city.

    • Not sure how you can convince people of Canberra - owners/investors, moving services to regional areas is a good thing. Values of their properties would drop as the jobs move.
      I think it's a great idea but again, how do you convince the people?

  • How about we abolish stamp duty (replace with a small fixed fee), replace with a nominal (small) land value tax on investments.

  • Id recomend taking a look at the link below, it shows how many houses owned by our political leaders. They have a huge conflict of interest and realistically wont be changing anything in the future that affects the pricing.

    http://www.abc.net.au/news/2017-04-20/australian-politician-...

  • I for one welcome our new landlord overlords.

  • If half decent Public service or corporate jobs move to regional cities people will move with the jobs. Skilled migrants are more likely to move to Woop Woop before they put roots down in the cities.

    There is no logic having so many Public service jobs in marginal seats in the main cities.

    Even when government assets like the NSW LPI is sold off to build crap like stadiums. The stadiums should be built in places like Albury or Armidale to boost sports tourism in the regional cities. What will they do instead ?rebuild existing stadiums in the capital cities.

  • Merged from Is RBA & government doing nothing to control housing market? Share your thoughts as anything goes up this high, will come down!

    I feel housing is out of control here in Syd or Mel. RBA & Gov is doing nothing to control it. I wld love to move out but I can't due to small business. Property is out of reach when you have family of young kids unless u move out far west. Stamp duty and minimum deposit of 20% is a killer. Paying TAX, GST and all other expenses to run my business but reward is next to nothing. Matter of the fact it, we can't efford and we cant leave sydney due to business.

      • -1

        Hi Gerbil, that's true that rents cant be raised so extreme that people just up and leave for better areas.
        As a young person (<30) and local property investor, hear my perspective if you please.

        Investors will raise rents only if we need to. It has nothing to do with "having balls" or swinging our power around. Doing so usually leads to good tenants leaving, a period of vacancy, paying the rental agent a whole week in rent and uncertainty that the new tenant is as respectable to the building as the previous tenant. In a nutshell, good tenants are hard to find and we're keen to keep them living in our investment properties long term.

        However, if rules change that triggers the investment maths to go deep into the red, as abolish negative gearing will definitely do, then the logical reaction is to find other ways of plugging that gap. If the losses are partially covered the tax return, the only other option is to aim our sights, sadly, at tenants. So we raise rents at the earliest possible time when leases are up for renewal.

        Gerbil you rent where you do because you find it convenient and appealing - its close to things you care about, lifestyle, friends, work or uni. Thing is if there ONE other person who is more committed to wanting to live in your place than you do, has a slightly better salary than you do, has a bit more saved up than you do, then that other person will accept the higher rent, and you'll have to move out west where travel times and lifestyle isn't as good…

        Everyone else renting in your area are renting from… investors. Can't be owner occupiers because then the place won't be up for rent.
        With the exception of retirees, they will also be working full time and feel the impact of negative gearing and raise rents. We're all responding logically way to a nationwide policy change, so its not collusion or anything sus.

        Now look, this is far form the ideal scenario I see myself in as a property investor giving accomodation to families, couples, students, etc etc. I see negative gearing as a way to have my own salary (via the ATO at tax return time) pay for costs which you as a renter would otherwise be lumped with. Now isn't this a better arrangement than forcing you to move back our west and downgrade your quality of living?

    • The government does not act for renters, it acts for a tiny number of extremely wealthy people that pay politicians so legislation is created that allows them to become more wealthy at your expense.

      Do not vote for a Liberal or Labour government if you want this to stop.

      DO NOT VOTE LIBERAL OR LABOUR.

    • Liberal = acts in interest of business and the corporate elites

      Labour = mass immigration and the mess you see today with congested cities

    • Just pray the feds going to raise more interest rates and our big 4s will have no choice but to follow through due to funding cost of our debt, majority sourced from external/foreign.

      Everything will crumbles as 50% of ozzie households live from paycheck to paycheck with no savings. And 1 in 5 households showing mortgage stress even with a mere 1% increase on interest rates.

      Becareful of what you wished for, as the big 4s are too big when they stand 50% of entire ozzie gdp. The entire economy will be affected when the fall of housing market hits the bank hard. Brace yourself for a recession.

  • sure non home owners outnumber home owners, usually investors with multiple properties, just have to wait for the next set of elections

    • Not alot of investors have more than one. Cant recall exact figures but its something like 90% of folks only own the home they live in.

      Would be curious to know the split between home owners, investors and unencumbered renters though. 20-20-60 perhaps? Just guessin

  • High housing costs is a direct result of government policy, it is what the voters asked the government to do over the last few decades.

    • Decoupling of land values from the CPI and core inflation index (and any consideration of rent is far lower percentage of the basket than a struggling household), thus allowing land to appreciate without leading to a rise in interest rates.
    • Negative gearing (socialising the risk, privatising the profits).
    • Capital gains tax discount.
    • Restrictive development/redevelopment policies. (people ask for restrictive policies to "protect" their investments)
    • Redevelopment (gentrification) of social housing, into private housing to push poor people out of desirable areas.
    • Laws on renting/leasing that highly favour the interests landlord, rather than the tenant like in Europe. (eg it's hard to find a rental property that accepts pets, will give you a long term lease without big rent hikes etc)

    All this means is that capital wealth appreciates faster than incomes and especially incomes for the less skilled/service/retail jobs. Which means that housing becomes increasingly unaffordable for these people.

    But all of the above is popular policy - it allows the rich to get richer and it provides an economic force for social segregation in our cities. It pushes those who are considered socially undesirable (for being poor) further and further away from where the upper/upper middle class people live.

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