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The Forum > General Discussion > Negative Gearing

Negative Gearing

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Denying deduction of losses will stunt enterprise.
Luciferase,
Says who ? There's no enterprise left in Australia to stunt, Try Flat Tax & you'll find that by easing taxes for those who presently pay too much will spur on local enconomies & those who presently make too much will not feel anything !
No big multinational companies will lose, they'll simply just make less than what they're wishing for. The rhetoric of Company losses is wrong & misleading. They don't lose they just make less which would actually be better for all as there would be more funding freed up.
Posted by individual, Saturday, 17 November 2018 3:55:23 AM
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Luciferase,
>Labor's class-war misinformation campaign is clearly working a treat.
It's generally the Liberals who engage in class warfare nowadays, though it was Gillard's attempt to get Labor into class warfare which allowed the Libs to do so.

_____________________________________________________________________________

individual,
>Says who ? There's no enterprise left in Australia to stunt,
Who do you think (other than the government) is employing people at the moment?
Posted by Aidan, Saturday, 17 November 2018 1:58:01 PM
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Aidan, here are some numbers to add real context to this topic:

Current population: 25 million
Total population increase last 12 months: 400,000
composition of population increase:
- migration 250,000
- natural increase 145,000

Number private dwellings:approx 9 million @ average 2.6 occupants
Composition of occupied private dwellings:
- renters: 31% (approx about 27% from private landlords, 4% social/public hosing),
- owners: 65% (31% owned outright, 34% owned with mortgage),
- other 4%

So the total number of privately owned dwellings currently being rented is about 9mx27%= 2.43million. A very large proportion of the people renting these dwellings will ALWAYS be renters as discussed in my previous post.

OK, now let's examine the consequence of the increasing population numbers:
Firstly, the yearly increase of 250,000 by immigration. Almost ALL of these people will start out as renters when they first arrive and many will ALWAYS be renters (especially many of those we import from the third world- those who are uneducated/unskilled are pretty much destined to be life-long renters).
Secondly, with the 145000 natural population increase by new births there is a comparable number who are 18-25ish and are leaving home and they will almost all be renters at first.

In other words, given the two facts that many people will always be renters and that we have an increasing population this means that EVERY YEAR hundreds of thousands of people need to be provided with NEW rental properties. This is the situation even though some of the existing renters become home owners for the first time. But importantly, it will remain the basically the same if even a few more as you envisage are incentivised to become owners; because it is such a huge number of new rentals that need to be supplied EACH year that it dwarfs the few extra new home owners that you propose.

--- continued below ---
Posted by thinkabit, Saturday, 17 November 2018 10:30:00 PM
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--- continue from above ---

This new accommodation is provided for by landlords (except public housing), and the ONLY reason that they do this is to make money. However, renting property by itself doesn't have very good returns as opposed to other investments and comes with a fair bit or risk and lots of bother, eg: the risk of renters wrecking the place, the laws now vastly favour the renter instead of the landlord so it is very hard to evict bad tenants or tenants who are behind in rent, tenants in Australia don't tend to take long term leases so quite regularly you need to find new tenants which costs you inconvenience, time and lost income when the place is sitting vacant between tenants, etc. In short, very often the only thing that makes landlording appealing to an investor is the use of negative gearing- without it many would never be landlords.

So, what happens if you remove negative gearing? Well extremely quickly you will notice a very steep decline in new rental builds since many landlords can now longer justify the investment. So now all renters will end up paying MORE rent since new dwelling supply has shrunk way faster than demand. And what happens when rent goes up to first home buyers? Well since almost every first home buyers is a renter to start with it becomes harder to save up for a deposit on (or buy outright) a home since they new have less money left after paying rent.

Basically, removing negative gearing will TOTALLY SCREW UP THE WHOLE HOSING SYSTEM by making life a lot harder/costlier for life-long renters and potential first home buyers.

[PS: in my previous post I typed the word "nonce" this should have been "nounce"]
Posted by thinkabit, Saturday, 17 November 2018 10:33:00 PM
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Just a glitch in the logic there, thinkabit, with, "So, what happens if you remove negative gearing? Well extremely quickly you will notice a very steep decline in new rental builds since many landlords can now longer justify the investment."

New rental builds will be able to be negatively geared while purchasing an established house for rental won't. Rental builds will rise when rents rise sufficiently to offset the lost cash-flow advantage NG currently provides through time-shifting losses (from the future to the financial year that is current).

The other things that will happen are gov't incentivization of rental builds, greater rent assistance, and building more public housing (beautifully gov't managed, of course), all leading to higher state and federal taxes.
Posted by Luciferase, Sunday, 18 November 2018 10:23:57 AM
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whoops, in my previous post I missed the word "no" in the following, "Well extremely quickly you will notice a very steep decline in new rental builds since many landlords can now longer justify the investment."
It should read "...can now NO longer justify the investment."

So to reiterate what I'm saying: If negative gearing is abolished then the decline in new rental builds will happen extremely fast (indeed, for proposed builds that an investor isn't committed to yet they can even be canceled the next day). It can take just mere seconds for an investor who is relying on negative gearing to decide not to build a new rental if it is removed, instead they will invest elsewhere such as the stock market, gold, etc.

However, it typically takes many months or even years for a currently renting potential home owner to save for a house deposit. So potential home owners (who are at any given time are a minority of renters- since most renters are destined to be life-long tenants because they typically aren't responsible with money or simply don't earn enough) cannot quickly change from renters to new home owners as fast as an investor can change from being a potential landlord to some other investment.

Overall, new rental builds dramatically decrease but demand for them can't possibly decrease as fast (demand can only decrease if the population stops growing or current renters switch from renters to owners), thus rents INCREASE. Rents increase to the level that it becomes attractive once again for investors to invest in housing.

But not only does increasing rent affect life-long tenants it also has a detrimental effect on first home buyers, because it takes even longer for first home buyers to save up for a deposit since they have less money available for saving after paying the increased rents.

So to sum up: removing NG will not make rents cheaper nor houses more affordable for first home buyers!
Posted by thinkabit, Sunday, 18 November 2018 11:46:41 AM
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