Also banks give exceptions to their own staff too
Any interesting article on -ve gearing. I believe it is few years old but has some good data.
No need for golden handcuffs they have them by the mortgage.
The problem with negative gearing is:
It allows on purchase for investors to spend more on property than they normally would as they can accept a lower rental yield to make the investment worthwhile.
This doesnt lower rents, it jacks up property prices.
The only thing that lowers rents is an excess supply of new housing.
This can only come about by excess land (including “land” as airspace for highrises and lowering construction costs.)
Lowering demand can create a short term drop in pricing but it will also dissuade construction of new homes. So eventually supply dries up to meet the market.
Negative gearing as a practice should be banned or severely curtailed. Every taxpayer not doing it is subsidising those who are and it does nothing to lower rents.
Tax subsidies should be for encouraging new development.
Overwhelmingly new development is bought buy first home owners, not property investors.
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What most people don’t comprehend about -ve gearing is if your income is lower than your outgoing (which is the only way you can-ve gear) then you have to put money in.
Every month when the rent doesn’t cover your outgoing, including agent fees, body Corp where applicable, insurance etc etc you have to put money in to cover the shortfall.
You might pay less tax than you would have at the end of the year just like if you run your share portfolio at a loss and -ve gear it.
Most property investors would prefer +ve geared investments which unfortunately due to the Australian property market just aren’t available except at the very bottom end of the market.
The only deduction that doesn’t require input is depreciation. Which is only available usually on properties less than 10-20 years old or that have had extensive depreciable renovations.
There are very few properties available in this country where the rent covers the mortgage. That only happens after holding the property for a few years funding the shortfall.
And the tax only funds it to the tune of your marginal rate, be it 30% or whatever.
The rest the owner has to put in.
No one ever talks about that. They think -ve gearing is free money.
It’s not.
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When you negatively gear you reduce your taxable income. Us the public are paying for your investment.
By being able to pay for the net loss pre tax your paying less for it and we are subsidising it.
If you couldnt negatively gear a property it wouldn’t be such an attractive investment. Ergo you wouldnt pay so much for it.
And as you said all investors would love a positively geared property. Ie they charge as much rent as they can get away with for a tenant.
It does nothing to reduce rents because its not aimed at increasing supply of new property. It just bids up property values.
It also distorts the market. Capital in Australia is overwhelmingly in property instead of more productive asset clases
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Because you are making a loss on a business like every other business.
That is just BS. Anyone who has an investment property wants to make a return on their investment, either by rental income or capital growth.
We have a nice property in Port Melbourne that shows no capital growth in the six years we have owned it and we get rent of $550 a week from a good tenant. This is a return of 2.78% after all the cost are deducted. So we make a profit, so no negative gearing.
If we had put the money in a term investment we would have got at least 4.5% now.
Now we could maybe put the rent up and screw over a good tenant, or maybe no-one would pay it.
My point is the negative gearing does not apply to everyone who owns an investment property.
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Nice point. Its not what im talking about though is it.
Im talking about anyone who does pay more for a property than what the rent would cover the interest repayments on purchasing it.
Ie anyone negatively gearing a property.
The losses are paid for by an investors pre tax income. Therefore less tax is collected than there otherwise would be.
Costing government billions in lost revenue. Revenue it has to collect in effect from other taxpayers.
If theres no negative gearing on property it makes a whole lot of people reevaluate if they want to buy property.
Leaving that existing property to those who will either buy it and accept a loss (if the rental market dictates that) for later hopeful capital gain or an owner occupier.
As a taxpayer I dont need to subsidies someone else’s investment. Particularly if its doing nothing for society.
I mean thats a big reason why we pay taxes. To better society.
If its not bettering society why are we paying for it? Doesnt pass the pub test
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So it follows that you would then not allow any business to use losses as a tax deduction,
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Not unless it was to grow the business.
A house isnt a productive asset. Its simply rent seeking
They are not one and the same thing.
Not much money in rent. The only way to make money on properties is to flip them for a tidy profit. Unfortunately this can be easier said then done and for every gold mine you find there are plenty that don’t come on as you had hoped
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No because the price of the property in Australia is bid up higher than it needs to be.
The long term effect of cancelling negative gearing would be more affordable properties and better rentals returns from point of purchase.
Lower rents is not a function of negative gearing. So why have it?
Theres some misguided belief that renters are price takers. They are not.
Property investors are.
The only reason we get a rental crisis(or owner occupier crisis - its the same thing) is because of a lack of new property supply(construction costs, land availability) or a short term dramatic increase in demand.(there is a lag in the ability for the market to be able to respond)
Yep it is, but it is very difficult to make a profit if you are a responsible owner
And who exactly bids it up?
It isn’t property investors
Um, yes it is?
Not exclusively of course, but they’re a big part of it.
Exactly.
If I buy a place somewhere for $500k and in 2 years time offers me $750k for the same place then whose fault is that?
Investors aren’t setting the prices
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Not necessarily. Most investors want +ve geared properties. They’re just not available.
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As a taxpayer you are subsiding all sorts of investments. Mining to start with.
The price is dictated by what people are willing to pay.
It follows if its made cheaper to hold through tax deductions people will be prepared to pay more for it.
Its not rocketscience
Yeah but where mining is subsidised is for incentives to develop and discover more minerals.
Which in turn creates more wealth for the country.
Irrational property speculation just creates homeless people(lower rates of home ownership and more expensive property ) and robs more productive endeavours of capital.
The only incentive required on property is to construct more of it. And on its own high immigration can do that.(or lowering land and constructions costs - which is preferable if you actually want cheaper homes).
If instead of negative gearing government released land, subsidised input materials(building materials and labour). We would have cheaper homes.
Instead we keep negative gearing.
We exempt or have low rates of key labour skills coming into the country(trades should be flocking here given what they can make) and limit land releases.
Nothing to encourage adequate construction.
Which needs to be the long term policy of the government.