A few things about negative gearing,

The problem is property is state based legislation (rather than federal based like financial planning) so we have many cowboys ripping off buyers and lending when they can't afford it. Federal law and under the control of ASIC would help stop a lot of property spuking.

Secondly, neg gearing if only on new homes would cause an increase in costs for new home buyers. As established houses would lose value, the demand from investors would dry up, very few homes would be built, meaning thousands unemployed, huge increase in rents, (as demand exceeded supply), as competition wains, builders can and would charge more.

Housing affordability is controlled by the state governments, if more land was released and stamp duty reduced, more houses would be affordable. But no, the state governments are addicted to stamp duty as drugs to a dealer.

Thirdly, if neg gearing benefits are reduced, less people would buy an investment property, meaning a higher demand for public housing (which state govts cant afford now), so landlords would increase rent, hitting the lower income people even more.

Negative gearing is not just for the rich, anyone can do it (with as little as $2000 into a share or property trust) So , stop blaming people who want to improve their wealth, help housing, help the building industry (our biggest employer) and help the governments (stamp duty GST, payroll tax, income tax)

And finally of the 160 politicians in Canberra, 138 have investment properties (the greens have an average of 3 each), so are they going to vote for something that will make them pay more tax?

Lies, lies and damn statistics! Over and over we're told how many mums and dads have modest investments in negative geared residential investments. Simply put, these arrangements will be grandfathered, and therefore will experience no real change except perhaps the value of those holdings won't rise as quick? Hardly a problem when the only real capital outlay has been a cash deposit, with tenants and the taxpayer paying for everything else?

And allowing those who have only ever invested hundreds, to reap multiple hundreds of thousands as the takeaway profit.

As for most folks who own just the one home?

If prices do go down so will the replacement when it comes time to move, which almost always happens, when the family moves on and the house and environs just becomes too big! If house prices decline, so will future recurrent payment on mortgage bills, household insurance, rates and stamp duty, and indeed the ubiquitous cascading GST?

And if moving all future negative gearing to brand new never occupied housing then increases demand in that sector, the first intended consequence will increase overall economic activity, jobs, long overdue decentralization and growth?

How can any of that be portrayed as a negative? "Lies, lies and damn statistics"! Quote unquote.
Rhrosty.

If there is little or no incentive to invest into housing, prices will drop but rents will increase (lack of supply)

If I follow Bill Shorten's idea, I buy a brand new property for say $500k, I get neg gearing benefits for 5 years. When I go to sell, future investors would not be interested in buying my second hand home (as no neg gear benefits), so my only market is new home buyers or people wanting to upgrade. As I am now competing with thousands of other people who have neg gear properties trying to sell, its a buyers market, prices fall. So I have to sell at $400k.

Why would you in the first place invest into property knowing in 5-10 years time you will make a capital loss?

So, knowing prices will fall and I will make a loss, I'm going to invest elsewhere. So no new home is build, more unemployment and higher rents.

Thousands don't invest in property for the rental returns, they invest for capital gains. No capital gains, no investment.

If you buy a $500,000.00 investment house, the capital outlay will be the deposit $50,00.00 plus legals and stamp duty and GST where applicable.

Now the rent will around $500.00 a week or $25,000.00 a year gross? And given you have negatively geared, all your actual capital outlays back in the first five years?

And given rents increase over time.

In twenty years time the property will be paid for and likely worth somewhere north of a mill? That's not a bad capital gain on an outlay of less than 10% of that!

Now suppose you sell that one and buy 5 more brand new houses, with around half of the proceeds as your deposit, stamp duty, what have you, and negatively gear, the tenants will pay down the new debt. And the bank balance would have swelled by half a mill as well?

In another twenty years you will likely be able to sell all five for a grand total of around ten mill? Now that is what I call a capital gain!

And all on the back of your very modest once only initial capital outlay 40 years prior! And a very reasonable retirement nest egg!

Simply put, the sky won't fall in with these mooted changes the only difference, greater demand for new housing?

If you just want to buy an investment house and the NSW government are doing the usual and dragging their heels, come up to the sunshine state, where you won't have to wait anywhere near as long nor stump up as much as your deposit!

And where a debt free, local builder can build you a steel frame house ,with a fifty year structural guarantee! The old house you might have invested in down there may have dry rot, termites or asbestos and be in need of a major rebuild?
Rhrosty.

Egad, but those Landlords must be rolling in filthy lucre and taking cruises very often, Regent's Seven Seas Cruise would be barely adequate, one imagines.

Whereas most landlords I've met do not have anywhere near the free time and quality of life enjoyed by their tenants. They always seems to be dressed very moderately (if they ever get out of their after hours working gear) and drive older, common, vehicles too. Always getting those after hours calls for tradesmen, urgent, especially from cob Friday through the weekend.

It is different for politicians, whose renter is in fact the property owned by their partner, that they use along with other pollie mates (who pay rental) while getting paid travel allowances by the taxpayer.

Want to save some real money? Cut down on the overseas travel by pollies. What about pollies' super? Cut it! Too easy.

Want to take pressure off housing prices? Cut down on immigration. Too easy.

You can always trust a politician to be throwing up distractions to avoid taking any responsibility.

Labor's Shorten is the master of the political distraction, but then so are his Shadow Ministers who are too damned lazy and busy enjoying their parliamentary entitlements to propose alternative policies. No hard yards for them!

Previous Labor Leader Mark Latham could add 'negative gearing' to his list of Labor distractions,

http://tinyurl.com/Labors-distractions

<FORMER Labor leader Mark Latham has slammed his party’s “obsession” with gay marriage saying it should focus on the nation’s “Struggle Streets” instead.

He told 3AW radio Bill Shorten’s private members bill to push for changes to the marriage act to allow same-sex couples to tie the knot, to be introduced into parliament on Monday, was nothing more than a symbolic gesture.

He said the biggest social issue facing Australia was unemployment, drug use and homelessness in suburbs such as Mt Druitt which was the focus of the SBS documentary, Struggle Street.

“If you are interested in equality and social justice in Australia then what was the really big event in the month of May,” he said. “We had the Struggle Street documentary which revealed that in the nation’s public housing estate, most notably in Mt Druit people live in conditions that you wouldn’t wish upon your dogs. Absolute chaos, despair and hopelessness in their lives.

“And surely, you would have expected a serious national response from the party of social justice?

“We didn’t hear anything.

“They’re obsessed, instead, by gay marriage.”>

Gay marriage, republic, 'negative gearing', these are all distractions. Anything but shirt-front the CFMEU and other union bosses who are running the Labor Party and were criticised in the Royal Commission into unions.

onthebeach, whole Latham's criticism of the ALP was uncharacteristically right, your adding negative gearing reform to the list is utterly ridiculous. Labor should, as Latham said, be concentrating on economic issues. And the plan to restrict negative gearing has resulted in the Libs running round like headless chickens.

Aidan, "Latham's criticism of the ALP was uncharacteristically right"

No, Mark Latham is usually very well targeted. He doesn't mince words criticising the cant and hypocrisy that is the genuflecting to political correctness and on both sides of politics, although his passion and life blood is Labor.

Anyone who favours Left and Labour* policies are NOT being well served by the Fabian 'Progressives' who run Labor. Mark Latham is not even being a Devil's Advocate, he is remaining true to the labour and Left movements. I might not agree with all of his policies, but he is one of the very few staunch, conservative Labour leaders -as in what Labour has always been about and keeping the faith of the rank and file.

* The traditional not the idiotic PC spelling, that patronising elitists like Gough Whitlam don't believe that traditional Labor rank and file can spell.

Aidan, "And the plan to restrict negative gearing has resulted in the Libs running round like headless chickens"

That is all it is about too and it is the very point I was making. It is just more cynical shyte-stirring by Shorten and his lazy shadow ministers.

It is NOT about providing welfare or low-cost housing. It is NOT about supporting and improving the rental industry. It is about managing cheap, misleading headlines that run a very serious risk of destabilising the housing sector, long-term.

Shorten should be tarred and feathered and run out of Canberra on a rail for that. He would be too, were it not for the fact that the tabloids would run anything as a lead to get low-cost sensationalist headlines and an audience.

Onthebeach: Landlords who buy older and more expensive houses as investment, often have to put on the overalls and get their hands dirty and drive older vehicles.

Most new houses, even the cheaper ones, come with a minimum twenty year structural guarantee, and will have had some treatment to limit/prevent the opportunity for termite infestation.

A landlord in overalls is hardly a savvy investor, just a dumb rube sold a lemon by a realtor, often the only ones making real money from the sale of residential real estate?

Or someone devoid of morals and just trying to cram as many folks as is possible into a ruin with a roof?

Buy a doer upper with good bones by all means, but something you live in for long enough to avoid capital gains tax.

And then reap your reward from the sale of a refurbished residence/residences!

Smart money will invest in new structures, where the repairs and refurbishment will be somewhere in the distant future, and done when rents will have risen substantially?

The only folks with something to lose due to these changes are the money men and realtors, little wonder they and affected realtors are the ones screaming the loudest, in pain and anguish?

And indeed, mounting the mother of all misinformation campaigns?
Rhrosty.

In more than 50 years of studying the property market I have not encountered many rapacious landlords. I have however encountered many misguided legislators, Consellors and Councillors.

I have not met many people who have become millionaires through negative gearing but a number who became bankrupt through gearing.

The millionaires I did meet either made money by capital gain or by insider knowledge.

Labor's proposals show a great knowledge of gambling but not much about investment.

Ross, the problem as I see it goes back to the fact that the majority of our politicians are chosen from those who the corporate world rejected, so we end up with who we end up with.
The problem with this situation is that while some pollies may have some worthwhile ideas, the reality is they all too often fall short of the mark and are open to manipulation, usually by smarter rats. The failed insulation scheme, the first home buyers grant and the subsidy for rain water tanks are two such cases where the idea had merit, but the execution was a disaster. I mean, once a rain water tank is full, the owner has no obligation to use it, whereas something as simple as making the subsidy subject to having it plumbed would have solved this. As it stands, thousands of these catch no water because while the owner has been rewarded for buying it, they choose now not to use it.

The stimulus was another example where billions was pissed away, where a simple debit card, with a use it or loose it clause would have been much better for our stimulus.

As for the insulation, the 'cow boys' who often ran this scheme were only doing what they were able to do. Whereas the first home buyers grant should never have been a grant, it should have always been a loan, say interest free for ten years, provided you didn't use the equity in the home. At least then we could have used most of this money over and over again.

Negative Gearing.
While I am a user of NG myself, I have long said that using this tax payer funded gift to accumulate wealth should never have been allowed to be abused as it has, and a simple 'Return to Profit' test could fix all that.

Governments are simply not clever enough when it comes to planning.

Rhosty,

Your post reeks of dis-ingenuity and bad calculations.

I would strongly suggest that you read:

http://www.theaustralian.com.au/opinion/columnists/henry-ergas/labor-must-stop-denying-negative-gearing-truth/news-story/139f92a95957b02f8d7b1018d39e93ac

Firstly no prospective landlord would be able to buy a property for $500k, and if he did he would get considerably less than $500 p.w. Then on top of this he would pay land tax and services. The reality is that for rent to just cover costs and interest, the mortgage needs to be less than 50% of the property's value.

Similarly the market reaction would be similar to 1986 when labor removed negative gearing last time, and rapidly reinstated it when rents shot up. Effectively the elimination of NG is a tax on rental properties that is paid for by the tenants.

Brainfart No. 47: Why not extend the limitation on NG to the purchase of newly issued shares only?! Older shares would not receive the same treatment and young people would then be able to afford to buy them, as they would become cheaper!

Jokes aside, why should housing be treated differently to other asset classes? Labor's plan should treat all classes equally, or house-building will die (with all the economic fallout that entails) and rents will fly.

If there was a such a level playing field, individual landlording will drop off, given Shad's point above, and give way to corporations in which individuals may invest.

Luciferase, there's one very big difference: limited supply. Companies can quite easily issue more shares, but the supply of land is fixed.

And there's a second difference: when share prices rise it makes it easier for companies to fund productive activity by issuing shares. But when land prices rise it imposes a higher cost on anyone who isn't in the fortunate position of owning the land they use.

____________________________________________________________________________________

onthebeach, though political correctness is a bad thing, lack of respect is generally much worse. Latham's attitude is more disrespectful than unPC.

And nor should PC be used as a synonym for anything you don't like. The party dropped the U due to its links with the American labor movement, and they did so before Gough Whitlam was even born!

Exposing the flaws in the government's policy position (and indeed the government's reasoning) is a necessary function of any successful opposition. But far from being style stirring, it's a practical policy that will encourage the building of new housing, slow the growth of house prices, and increase tax revenue. But because the Libs didn't think of it themselves, they resorted again to ridiculous scremongering, relying on "the fact that the tabloids would run anything as a lead to get low-cost sensationalist headlines and an audience". But if the polls are anything to go by, most of the public saw through it this time.

Regardless of whether or not negative gearing will raise or lower the cost of housing, it is obviously another loophole in the tax system whereby the government can take from the poorer sections of the community to subsidize the already, in most cases, the wealthy.

Even if it does raise the cost of housing, at present it is costing us in excess of $10Billion a year in lost tax revenue, helping us to become a less fairer society, while the rich get richer and the poor get poorer.

Negative gearing by itself would not be so onerous were it not for the extremely generous tax concessions given to capital gains. Why should someone who makes excessive profits on a capital investment pay half the tax that a farmer or labourer with the same income makes. Well, we are hardly likely to see these laws changed greatly when the majority of our politicians are negatively geared.

Adam Smith, in his "Wealth of Nations", posited that a rich country is one in which even poor people could afford housing. Bring on any change that will reduce the cost of housing.

Aidan,

With respect, the first priority should be the sustainability of the rental housing sector.

The sector is unattractive to the major institutional investors and to anyone with the nouce and professional advice to undertake a sober analysis of risks and returns.

Where else apart from farming is it seriously suggested that you have to sell your business to have any hope of a return? Like the farm, the 'investment' renter is so heavily mortgaged and has so many seriously expensive overheads, repairs and maintenance, that owners must severely compromise their own lifestyle to have any hope of remaining above water.

However, if you say there are fortunes to be made and all money for jam and freebies from government, go ahead and 'invest'. It is obviously not the choice of many and for very good reasons they would say.

You could suck the sav by renting out your home while on holidays and see how that turns out.

Shorten has no policies. He is distracting attention away from that and from his inaction on the CFMEU and other unions that run Labor. Now he is asking the electorate to let him do to the private rental sector what the federal governments of which he was part did to aboriginal housing.

So, Aidan, NG is not the culprit forcing up property prices to unaffordable levels for new entrants (wherever prices are not going down, that is)?

It's supply and demand that's the problem. NG is a pimple on that bum.

Why bother with it on property only, and not other asset classes? It's envy driven, that's why.

Baucopbob, take away negative gearing for what you suggest are the rich, and they will invest elsewhere where Ng applies. Makes perfect sense.

However, for those who cant afford property (another myth of sorts) where do you propose they are going to live because at present we have a mass undersupply, not an oversupply. So if you effect supply it stands to reason that the problem will worsen, not to mention put us back ten years.

Be careful what you wish for.

I wonder if the Members of the Labor Party realise that anyone who borrowed money on or against Slater and Gordon Shares is now negatively geared.

Nice one N82.

A company structure allows an operating loss to be written down against a future operating profit. For individuals an operating loss is limited to being offset against income only in the year it is incurred.

Should we say to companies "sorry about your loss this year but we'll tax your profit next year"?

Reading my comment back, what I meant to say more clearly is that companies can write off all their losses, eventually, so why too shouldn't individuals be able to write off all their's, including those who earn no annual income from work?

Perhaps an alternative to NG is for losses on individual investments able only to be written off against future profits (i.e. rather than current income), in the same way a capital loss can be written off against a future capital gain.

How might this re-skew investment in housing Australians? There wouldn't be much change to house prices, IMO, with supply and demand being their primary determinant.

Investment specifically in new housing could be incentivized in other ways.

Just keeping the discussion going, with the likelihood of an LNP victory protecting the status-quo anyway.

Luciferace, pre negative gearing there was no capital gains tax, either that, or the dates were close. I know several people, older than me, who would buy a property for X, sell it a few days, weeks, months, even hours later for a profit and pay no tax. So by all means write a loss off against a gain, but you would first have to remove CCT.

If by chance this were to happen it would still drive many from the market and make rentals less available. They would be driven from the market because they would have to service the debt from after tax dollars, and many current investors could not afford that.

If labor gets their way used house prices will plummet, first home buyers will find it harder and a gross shortage of affordable housing will be the end result, along with higher rents.

Prices will plummet due to lack of buyers, first home buyers will have increased competition from investors, multiple dwelling complexes will decline and rents will increase due to lack of supply.

Butch CGT came in Sept (think) '85, and NG pre-existed this.

Capital gain/loss and operating profit/loss stand separately. People use NG to help in holding costs while awaiting the best opportunity to sell for a CG. That's the punt.

NG itself doesn't contribute to wealth like capital gain. Punt wrong and you get hurt. NG is just a mitigant.

As long as all asset classes on on the same level playing field, whatever the rules, housing values might hold up due to the supply and demand factor. If we want more new housing stock, for public or private tenants, we should make incentives, not create disincentives for buying older stock which Labor promotes.

I don't know who's doing Labor's modelling on this but it seems driven by envious nongs.

Yes Luc you are so right, although NG would have only come in shortly before CCT.

I don't have a problem with CGT provided Ng stays as you take in one hand and give in the other, that's balanced. However, if you want to remove NG from existing homes, then CGT must also be removed, because at least then the used housing market will attract investors who wish to buy a property, renovate then charge a higher rent.

I have used NG over the past twenty years and all properties I own are now self funding, however, I have a carry over debt from a failed business venture that is negatively geared which from what I understand will be fine with labor should the get their way.

If this is the case, then essentially what they (labor) are saying is its fine to take a risk in non housing, but take on in housing (old stock) and you're on your own. That's plain dumb!

Surely it makes more sense to allow right offs for an essential investment like housing, than on a risky venture, apparently not.

The other dumb part about all this is that I, as an investor, can buy speculative shares in a highly volatile business, even a 'thought bubble' knowing that I can right off the losses, yet, if I choose to take a risk buying a used house, PRIVIDING RENTAL ACCOMIDATION, which is in huge demand, I can't right this off in labors plan.

The days of accumulating two or three old houses, side by side, then replacing them with multiple dwellings will also be placed at risk, placing more strain on an already struggling sector, that be availability of affordable housing

It is clear that Labor is looking to drive down house values by saddling investment in it with lead bags compared with other asset classes. I don't yet see any mention of equal treatment this policy brain-fart by envious ideologues.

This forces housing investors into forming companies so their operating losses on investment in older homes can be carried forward. This is a disincentive while NG against income remains for alternative investments. Investors will cease to respond to the demand for housing until the return on it is sufficient to outweigh the existing negatives and Labor's new impost.

In this scenario, new housing will not be built by investors until return on investment (rent) rises sharply.

Government will need to provide what privateers will cease to, affordable rents for the less well off. This will be by building more public housing or by subsidizing rental of private stock, all at great expense to the public purse.

Fortunately, Labor, which is shortly to be beholden further to the Greens by voting changes to the Senate, has Buckley's of winning an election while Turnbull is in the chair

What is not considered by "think tanks" such as http://www.afr.com/news/politics/bis-shrapnels-negative-gearing-report-is-manifestly-ridiculous-20160302-gn8sv0
is investor motivation. What are you going to get for your newly built negatively geared house when you want to sell it? A price on this uncertainty has to be factored into an investor's business model. The resale market will be much slimmer than it is now as a result of Labor policy, but how much will this depress house prices?

IMO, rents will have to rise by somewhat more than 10% BEFORE many investors dip a toe into that water. I'm deciding whether to sell or keep my rental. On one hand, under Labor policy (when they eventually get back in), it's value would fall while, on the other hand, rent would rise as housing supply slips behind demand. Any new investment I make will be in negatively gearable assets without the resale uncertainty attached to housing.

Yes Luc, I have a high value asset that is positively geared and im considering selling this so an investor can 'lock in' on Ng while its still on the table. I would then buy two or three cheaper rentals as these, despite being negatively geared, will most certain enjoy a much higher yield should Ng get the chop simply because rents will skyrocket, and I mean, Skyrocket.

These fools have no idea of the damage they can potentially cause to about the only sector that is doing quite well.

Governments are notorious for dropping bomb shells on property investors, like the way they caused shock waves through the super industry by making it unlawful for funds to borrow, or for owners of commercial units to rent their own units.

Because governments are on such shaky ground these days, its only a matter of time before the likes of labor get back in with their hair brained ideas like this one.

I agree, skyrocket, and after that new investors will return to the market. Gov't will be supporting with rent assistance and more public housing. Investors who already hold property will suffer a loss in value.

A 5-10% loss on a substantial property can be a lot more than can be recouped in a rent rise over 5 years, say. A crystal ball would be handy.

Once things get bedded down life will carry on, as it does in the rest of the world where there is no NG, but the transition will see winners and losers. The winners will be the buyers getting property at prices depressed by uneven Gov't policy on investment in income producing assets, the losers will be the sellers.

Luc, the other problem that may occur is that the banks may get a bit 'gun shy' with their lending, and insist that the borrower take a great share in the risk, which may see lending be limited to 60-70%, rather than the usual 80% as is the case now.

So if a buyer is wanting to buy a home to live in, rather than having to save say 20% of $500K, they will need to save 30% of say $400K, which would equate to $20K more.

I say this because banks take into account the prospects of 'getting out' of a property when taking on a borrower. With investors gone from the used market, the buyers simply wont be there, and if they are, they wont buy unless they get at least 8% return, which means that $500K house, that's now $400K will have to rent for almost $700 per week.

This is such a potential disaster this policy if it were to get in and those who hate Ng for the sake of it just don't get it. But they will

As for government assistance, I agree, but where will the money comne from?

More good news, Butch, when your house value goes down the rental yield goes up, without even raising the rent. Everyone kicks a goal,everyone's a winner! Bring it on!