Australian Housing Affordability Discussion

[UP4014]

My goodness I didn't realise JohnK was responsible for the rise in house prices and housing now beyond the reach of many.
First JohnK played by the rules.
Second there was no guarantee that house prices would rise.
Third negative gearing by itself is not the major factor in land price rises.Low interest rates,foreign buying,developers land banking and probably also our media for pushing recognition of the money to be made from housing.
Fourth even if there wasn't negative gearing all the costs would be deductible from the capital gains that have been made over the years.So the thing that really reduces the tax take over the years is the CGT exemptions.

Besides all that JohnK has only a relatively trivial bit of the negative gearing pie.

Personally I am in favour of abolishing negative gearing with a possible exemption for new builds.However those that have made long term investment decisions that are fully compliant with the laws at the time of buying should be grandfathered.


Unfortunately the politics of envy is predominant at present.

Tax law changes all the time, nothing stays the same.

Sell while you're ahead, thats the gamble of investing in anything. (knowing when)

 

[JohnK]

Without looking at median housing price stats, for the 27 year investment, if it was as an apartment outside the inner ring of the major cities, I'd probably guess you could even be better off under the old indexation method than today's method. If it was house or land, my gut feel the Peter Costello method we currently have would be better for you.

In either case, if you've held a long term investment the effect that of changing removing the 50% discount on capital gains (even if not grandfathered) would be nowhere near as dramatic as many make it (it certainly not going to double the tax payable). If you've held shares for a year and they've doubled in value, or held a property for four years that has doubled in value, the change would be far more dramatic and signficant. I think investors over timeframes in the order of 20+ years, have very little to worry about.

I am quite happy paying the 24.5% capital gain tax of my profit. Anything more than that and it is theft on a grand scale and totally unjustified regardless of what the peanut gallery thinks. If I can pay less then even better.

Do people seriously go about their lives thinking how they can pay more than their fair share of tax for the common good? And I am not talking about making more money to pay more tax.

And I can't stand people aligning their thoughts with party politics. It is quite clear in this thread.

 

[alieninperth]

For all of the conversation around grandfathering and how it should apply, it would appear that no-one has read the ALP position on this. From the ALP website (Positive plan to help housing affordability - Australian Labor Party)[h=2]No retrospective tax changes[/h]Labor recognises that Australians make financial decisions in good faith on the tax arrangements in place at the time.
While making change to the tax system to improve fairness is a policy objective of Labor, it must be done without negative retrospective impacts on existing investments. This same approach was taken by Labor the announcement policy to curb generous and excessive tax concessions for high income superannuation accounts.

Full details are on the ALP site.

JohnK, It looks like you would covered under this grandfathered arrangements.

 

[alieninperth]

For all the discussion on Grandfathering, it seems that few people have checked on what the position would be under the ALP policy.

Here it is for reference Positive plan to help housing affordability - Australian Labor Party

All changes will be grandfathered. JohnK, it looks like no change would be needed to your plans then.

edit* - The URL shorted to the text above, this does not necessarily reflect my personal opinion on this policy

 

[whatmeworry]

The Compass Housing group has released a report into how help those struggling to buy property, by redirecting Capital gains tax on houses and investment properties to those that can't afford it.

The federal government should examine “iniquitous” and “inefficient” home ownership and investment subsidies, including negative gearing, to aim for a $12 billion per annum in savings, the report from lobby group Compass Housing suggests.
This Robin Hood approach of taking from the asset-rich and giving to the asset-poor is among 15 recommendations made in the report Toward a National Housing Strategy launched on Tuesday.
The Capital Gains Tax (CGT) exemption for the main residence is likely to cost $100 billion in the four years to 2018/2019, according to recent Treasury estimates.
“High earners in the top 20 per cent receive 55 per cent of the benefit,” the report says, pointing to a study from The Australia Institute calling to end the exemption for homes above $2 million.

However, it was the “shared opinion” of the report’s contributors that changes to the level of home ownership subsidy was essential, and almost all contributors “stressed the need for reform”.
“Reform of CGT exemption for the main residence and the CGT discount on investment property are seen as the prime targets for change that could contribute to the solution of current issues and build toward a robust and sustainable housing system for the nation,” the report said.
But change won’t be easy. The report warns of “vested interests” from individual consumers, real estate agents, builders and investors who would want to maintain the status quo.

http://www.domain.com.au/news/put-t...achieve-affordability-report-20160510-goqeza/

 

[JohnK]

JohnK, It looks like you would covered under this grandfathered arrangements.

Sounds good to me. Sounds logical to me. Quite happy to pay what I expected to pay.

But now that I am married need to find out if I get any other concessions on capital gain tax or even income tax.

 

[straitman]

"Capital gains earned via a housing bubble" = "fruits of my labour" = delusional.

Why is this delusional?

Someone gets off their butt and spends time and effort working out options and then investing and doing OK out of it is never delusional IMHO.

 

[cove]

Housing properties carry risk levels with the markets capable of going down as well as up. Most governments view property owners as the golden goose so you have to deal with ATO, state stamp duties and land taxes as well as local government rates and taxes. Stop thinking it is money for jam and if the big 4 banks slow up on lending then the market can drop.

 

[straitman]

Housing properties carry risk levels with the markets capable of going down as well as up. Most governments view property owners as the golden goose so you have to deal with ATO, state stamp duties and land taxes as well as local government rates and taxes. Stop thinking it is money for jam and if the big 4 banks slow up on lending then the market can drop.

I agree. I know many people who have done extremely well out of property and at the same time quite a few others who have not.

 

[ComeFlyWithMe]

So the ALP says that the abolishing of negative gearing won't affect rents or property prices, so how does it address housing affordability exactly?
Also, if an owner can no longer deduct a rental loss, why wouldn't they pass this on to the tenant in increased rent in order to not make a loss?

 

[straitman]

A perfect summary of how the taxation landscape distorted investment decisions in favour of property. It's about time some of those distortions were addressed.

Only a perfect summary when you quote out of context as I believe you have done here. JohnK's original post was a lot more comprehensive than the quote and explained his logic in a lot more detail.

 

[dajop]

Also, if an owner can no longer deduct a rental loss, why wouldn't they pass this on to the tenant in increased rent in order to not make a loss?

In the housing market I expect most landlords maximise their rent in terms of what the market can bear, given supply and demand at any point in time (i.e if they could get a rent increase they would, irrespective of whether they need the increase to cover losses or not), perhaps the exception being those with long term tenants where both sides may negotiate in good faith. So I don't think it's as simple as saying they will pass this on - unless all landlords did so uniformly.

I know when setting the rent for the apartment I own I don't sit there thinking "What rent do I need to make a decent return?", I think "What rent can I get"? Sometimes I can get away with a rent increase, four months ago it meant a 6% rent decrease, as the competition was intense.

 

[junbugging]

Only a perfect summary when you quote out of context as I believe you have done here. JohnK's original post was a lot more comprehensive than the quote and explained his logic in a lot more detail.

I have re-read the original post in full and stand by my quote being a reasonable summary. In any case, I've stopped participating since it became clear the discussion had little to do with housing affordability, having somehow deteriorated into claims that some unknown political party was trying to steal JohnK's retirement.

 

[ComeFlyWithMe]

In the housing market I expect most landlords maximise their rent in terms of what the market can bear, given supply and demand at any point in time (i.e if they could get a rent increase they would, irrespective of whether they need the increase to cover losses or not), perhaps the exception being those with long term tenants where both sides may negotiate in good faith. So I don't think it's as simple as saying they will pass this on - unless all landlords did so uniformly.

I know when setting the rent for the apartment I own I don't sit there thinking "What rent do I need to make a decent return?", I think "What rent can I get"? Sometimes I can get away with a rent increase, four months ago it meant a 6% rent decrease, as the competition was intense.

And you don't think an increase in net cost would influence the rental market?

 

[dajop]

And you don't think an increase in net cost would influence the rental market?

It would affect the rental market, but not via landlords simply raising rent in response to loss of negative gearing privileges (especially if grandfathered, those with existing investment properties would be advantaged in comparison to those buying new existing stock investment properties ...). It would influence the rental market through complicated factors that would impact the long term supply of rental properties. I guess they could either be positive or negative depending on how it all plays out, and depending on other factors that influence supply and demand.

To simply say removing negative gearing = increase in rent, would be an over simplification.

 

[JohnK]

To simply say removing negative gearing = increase in rent, would be an over simplification.

What would you say to someone who thinks removing negative gearing = decrease in property prices? Bollocks?

 

[irv]

Interesting reading, I will throw another thought into the mix. Most people buy property, whether investors or owner occupiers to hopefully make a capital gain in the long run. So why can't we all have the same conditions, I pay the same costs as an investor, interest, rates, repairs and so on. So make the rules uniform, tax deductions and CGT based on the current investment rules for both investors or occupiers, or is this to bold.

 

[andye]

Interesting reading, I will throw another thought into the mix. Most people buy property, whether investors or owner occupiers to hopefully make a capital gain in the long run. So why can't we all have the same conditions, I pay the same costs as an investor, interest, rates, repairs and so on. So make the rules uniform, tax deductions and CGT based on the current investment rules for both investors or occupiers, or is this to bold.

To raise CGT on primary residence from 0% would be politically (in the words of Sir Humphrey) brave.... even if you did allow tax relief on mortgage interest

 

[irv]

To raise CGT on primary residence from 0% would be politically (in the words of Sir Humphrey) brave.... even if you did allow tax relief on mortgage interest

Grandfather it, and completely level up the field.

 

[levelnine]

No it's not totally fine to change those rules.

People took risks based on rules in play at the time. If you changed those rules now without grandfathering the changes you are punishing those people.

And by the way I didn't take advantage of anything. I am the one that has taken all the risks. Government has done nothing.

The entitlement of older generations is quite astounding.

Think of it in the following terms. Your current wealth is a product of (a) your labour, (b) the risks you took and (c) the regulatory environment in which you inputted your labour and took those risks.

Your wealth is, therefore, not entirely a product of what you did. In fact, an enormous amount of your wealth is due to the government. If the government didn't create a complex legal system to protect your wealth, you would have less money. If the federal government didn't put in place taxation structures to make property an attractive asset class, you would have less money. If the state government didn't put in place land zoning and planning policies to restrict the supply of new properties, you would have made less money.

These policies have created enormous inter-generational inequality. Those policies that benefited you disadvantaged other people. They have denied hundreds of thousands of Australians the same opportunities that you enjoyed. Need proof? Read this article: The housing affordability trap • Inside Story

It is, therefore, entirely fair for those policies to be changed to redress some of that inequality.