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The Forum > General Discussion > If we don't act, we are going to go broke.

If we don't act, we are going to go broke.

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So what you're both saying is that people who sell second hand houses only buy more second hand houses. That's simply not true.

In fact, many investors buy brand new so they can claim maximum deorectiation.

As for NG, I even suggested that perhaps there needs to be a 'return to profit' test, that basically states that the property purchased must be posetively geared within say ten years.

What this would do is eliminate the property banking that goes on whereby investors use built up equity in one proerty to fund the next, continually, eventuating in multiple properties all with a debt ratio of 80% and all receiving negative gearing benefits. Low interest rates have assisted this.

Another option is to implement laws that state that in order to receive NG credits, the loan must be P&I. This again would be a game changer but assist those who genuinely want to invest, but remove the property barrons who in my view do abuse the system.

I'm sure that was never the intention of negative gearing.
Posted by rehctub, Sunday, 1 November 2015 6:08:03 AM
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rehctub,
"So what you're both saying is that people who sell second hand houses only buy more second hand houses."
I'll let Poirot answer for himself, but that's not what I'm saying at all. I'm saying that the people who sell second hand houses would sell them whether or not the buyers were buying to let.

FWIW personally I think the best solution would be to retain negative gearing but have a broad based land tax to replace GST and stamp duty. Unfortunately phasing that in without unfairly disadvantaging existing property owners would take decades.
Posted by Aidan, Sunday, 1 November 2015 2:23:19 PM
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...... I'm saying that the people who sell second hand houses would sell them whether or not the buyers were buying to let.

Aiden, that doesn't make sense because the debate is about Mr Eastlake suggesting that negative gearing does nit stimulate the new housing market. Untrue.

Poirot, while I accept your opinion on Mr Eastlake, the fact is that most economists tend to sit between business and governments when it comes to opinions.

Business usually try's to predict the future, the recent bank intreats rate hikes are a prime example because they see pain coming. Government acts on data, and this data is 'old news' because it's already happened, eg, the data released for the Setember quater. Economists use a mixture of data (old news) and predictions, eg, they have an opinion on whether or not the reserve bank will touch rates, but when talking about issues like housing, they generally rely on data, eg, building approval rates.

Again, when building approval rates drop for a quarter, business (builders etc) have alrady acted.

Mr Eastlake is very much against negative gearing, yet refuses to accept that if we remove incentives for investors to invest in housing, two things will happen. Actually three.

The first thing is that less houses will be built, and this will effect the building and it's support industries. The second is that renters will compete with renters, meaning more tenants and less houses, price increase!

The third, and in my opinion the complete unknown is that oncebthe investors leave the market, banks will most likely firm up their lending criteria by insisting borrowers go back to the 80's (coincidently ore NG days) so borrowers may require 30% deposits again, effectively reducing any real benefit from what should by all means be a reduction is over all house prices.

Let's face it, 10% of $600K is the same amount as 30% of $180K and houses won't drop that much.

So I'm sorry if I don't agree with one of our smartest, but that's life and I think I've given a pretty good reason as to why.
Posted by rehctub, Monday, 2 November 2015 10:28:45 AM
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