Are you qualified to speak or write on property?

An equities trader for an investment bank?

I could say case closed there, but you may want to consider some things you mentioned.

"To help those renting it is more logical and effective to direct subsidies directly to them rather than indirectly through their landlords and a theoretical trickle-down effect."

Would these people therefore be encouraged to buy if they recieved tax benefits and subsidies as tenants? i think not.

and this:

"it also encourages property investors to bid well beyond what the rental yield on a property would suggest was a reasonable price to pay"

Yeah, because the owner occupied market is strong in that area therefore prices are higher and yeilds therefore are lower. You cannot tell me that in this area the investor will outbid an owner occupier as despite your thoughts it still comes down to numbers. the numbers are less important when it is not for investment purposes, it is for physical need.

Investors are never willing to pay a premium like an owner occupier, thats the difference between and business (investment) decision and an emotional (home buyer) decision. You are turning this common sense on its head though, am i correct

In all types of property, the quality property generally has a lower yeild ie. Waterfront property will run off lower yeilds but has been proven to outperform non waterfront property capital growth wise. they are the facts.

Do people invest in property purely for tax purposes? No, in fact most are not claiming all their entitled deductions, alot are not using Income Tax Witholding Variations and the like, tax deductions is not the reason people invest, capital growth is. Tax breaks offer an needed bonus and extra borrowing capacity due to the diversion of income tax monies to the property.

and this:

"we should look to target negative gearing to cases where it does add to the rental housing stock without cost to owner-occupied housing."

So if we enacted this theory, as you you have pointed out at the top of your article investors drive up the prices of properties, you are happy to restrict investment in many established areas therefore ruining values in the market for those very owner occupiers you are trying to protect. If the demand drops theoretically the price may drop, therefore equity levels and that is when you will have people realy loosing homes, and with no investors around when selling (according to your logic they put the price up, dispite being less than 1/3 of total purchases)these people are even further disadvantaged.

Leave the property commentary to those with the degrees in it, or the experience. I welcome your thoughts but you are not in the field, nor do you understand the real mechanics behind property investment, or you would not have provided these 'insights'. The alternative to property investment is to have a massive public housing and welfare burden, which in the end costs us far more that a few tax deductions. And if you reduce investment you reduce the flow on of over 60 jobs that 1 new home creates.

I think if we are serious about increasing housing affordability we need to break the monopoly. In this case the monopoly is held by the state governments who limit the supply of land. This is basic law of economics - prices will always remain high if demand outstrips supply.

Demographia [http://www.demographia.com] in it's third annual report on housing affordability blamed regulation as the primary reason in unaffordability. Look it up - it is an interesting report - one that put Australia as the most unaffordable housing country, out of places like the US and UK, NZ etc.

Amen Damian! Finally a realistic look at the real problems facing potential owner-occupiers trying to get out of the rent-trap. None of this "not enough land being released" rubbish we get from apologists interested only in maintaining the status quo.

Also, a great suggestion to limit negative gearing to new dwellings rather than have it apply to existing stock. This will clearly have the affect of increasing the stock of rentals whilst simultaneously giving new home buyers a chance to break into the home ownership cycle.

Contra "Realist", it is entirely accurate to say that negative gearing as it is currently implemented is artificially increasing housing prices for precisely the reason "Realist" accidently provides: It gives potential investors "extra borrowing capacity" and in so doing the ability to outbid even the most desperate potential owner-occupier.

Of course this will result in losers. Existing owner-occupiers and investors will see a reduction in the potential value of their properties. This is bad for existing investors to be sure, but given the years of tax subsidies they've enjoyed I won't be sheading too many tears. On the other hand, the concern for owner-occupiers shouldn't be so great, since if they realise this reduction in value (by selling their dwelling) it will be balanced by the reduced price they'll pay for their next dwelling.

Winners of this change will be many: long suffering taxpayers being asked to subsidise other people's investment decisions; productive industry that will receive investment dollars that would have otherwise been wasted on unproductive property and the Australian economy for having this market-distorting subsidy removed.

Of course, the real winners will be first home buyers: no longer battling a tax subsidy explicitly designed to keep them locked into the rental market, they will finally have the chance to enter the home-ownership market.

skillet, I share your amen. However, I'm not hopeful change will come soon. There are simply too many vested interests determined to keep things unchanged. In many years, as the super changes take effect more investment money should leave speculative property. The market might deflate to an extent where the political situation would allow for these type of changes. But I'm not holding my breath.

At the moment the only real option for many first home buyers it to look outside the capitals. I can recommend prices anywhere between Alice Springs and Darwin :)

What I never understand with the whole issue of house investment, versus any other form of investment, is “negative gearing” is not something which applies to housing especially but is commonly available for all kinds of investment of any sort. The rules for treatment of depreciation, operating costs (including interest charges on borrowings) and income are the same for housing investment as any other form of investment.

Suggestions that “negative gearing“ should be looked at “differently”, if and when its refers to “housing” is An entirely bogus argument and represents the worst kind of cart-before-the-horse mindset.

It is as logical to suggest people who invest in shares for (say) building companies should be treated according to different rules to those who invest in shares for (say) car companies.

All that would happen is the “housing market” would make an adjustment at the weakest point. That means, either rents would rise to afford the loss of benefit from negative gearing or housing investors would exit the market, both eventualities making rental property even less available and causing upward influence on rent (supply & demand) (all as happened in the 1980’s when Keating played with it).

Housing affordability rarely changes beyond 10% +/- of 30% of gross income (=27% - 33% gross income) some change is inevitable due to the time lag effect of between deciding and actually experiencing to buy or sell housing investments.

Change gross incomes, prices will increase or fall. Employment booms or recessions (and thus income increases of decreases) are a leading indicator of housing booms or recessions, as happened in 1980’s.

The “problem” (if that is what you can call it), is we are in a period of extended boom.
Therefore housing prices will increase.
If we were to end up with Labor at the next election, by 2010 housing affordability would be better because house prices would be lower as more and more people lose their jobs as socialist mismanagement pushes the whole economy into recession.

Messing with Negative Gearing is like someone pissing in the Yangtze and expecting the water level to rise.