The current situation is unsustainable there is a big gap between affordable rents and sustainable rental returns.

If a 2 bedroom unit sells for $320,000 then for a reasonable return the rent should be $325 per week. A 3 bedroom house that sells for $650,000 should be rented for $650 per week.

If a tenant is earning an average wage of $58,000 they have a gross income of just over $1000 per week and a disposable income of $800 per week. Tenants are in rental stress if more than a third of their income is spent on rent.

In inner suburbs with high demand for rental accommodation the 3 bedroom house rents for $425 to $500 per week and the 2 bedroom unit rents for $260 per week.

Over the past 50 years landlords have made money from capital gains on their property. Landlords run the gauntlet of low income tenants who default on and part pay their rents for a variety of reasons.

I have absolutely no problem with decent low income housing being provided by state owned Housing Trusts because private landlords with 1 to 3 properties can't afford to deal with low income tenants facing housing stress.

Grputland “Now that really takes the cake.”

As Marie Antoinette said “Sarcasm never works for me.”

“If the rent paid by the tenant . . . .why shouldn't the tenant get 60% of the capital gain?”

If the landlord fell on hard times and sold the property at a loss, should the tenant pay the landlord 60% of the loss?

“No”

because “the tenant signed up for occupancy, not house price fluctuations.”

Re Giving the tenant 60% of the gain

Answer “the tenant signed up for occupancy, not house price fluctuations.”

The future taxable capital gain is a speculative benefit, not assured by time or practice.

If a tenant wished to participate in any future capital gain, he might but likely, only at the expense of increased cost of occupancy or by buying an investment himself.

No investor would sensibly forego additional benefit to a tenant unless the tenant was prepared to pay for it.

Otherwise the return on the investors investment would become sub-viable (relative to its “risk”, the return on investment housing would become inadequate and investors would look at alternative / "Competetive" options like shares or commercial property or futures markets etc.).

Re “tenants subsidize the capital gains of landlords.”

If a tenant pays less than cost (negative gearing tax loss for the investor), then the tenant is clearly being “subsidised” by the investor.

The benefit a tenant receives = some where to live.
The benefit an investor receives = someone paying rent.
All good contracts benefit both parties (Symbiosis). Otherwise one of them would not enter the agreement.

Billie “situation unsustainable”

All markets are infinitely sustainable, all that happens are the prices change with supply V demand.

Agree $325,000 house would generate a rental of about $325/week (5%pa rent return).

The tenant’s desirability to pay would find the value of the $650,000 downgraded to something less.

Re “private landlords with 1 to 3 properties can't afford to deal with low income tenants facing housing stress”

You are an observer. That choice / risk, only the private landlords can individually make / take themselves

Daggett, I simply see your situation from a different perspective then you do.
Had your life unfolded differently, the housing market would have worked
fine for you, you would now be a proud house owner, all paid for, ready
to leave it to the kids. What happens in your private life, cannot be blamed
on the market.

If WA can provide welfare housing, so can other states. Homeswest has
been around for a long time, through liberal and labour Govts.

Wiz, rents can be both low and high, depending on your perspective. Billie
made some good points.

I had a look at your favourite suburb, Blackburn. There are houses for rent
for around 350$ a week. Convert that to interest at 8%, it pays the interest
on 225k$. As an investor, why should I pay twice that and lose the difference
every week?

If your sister’s partner has only just graduated, you are jumping the gun
yet once again. The impatience of youth! Schoolteachers, which she
thinks are low paid, earn 50-60k a year in WA, more for higher up ones.
When they both earn that amount, they could rent a place, bank one
wage and in a few years save nearly enough to buy a unit outright.

With rising interest rates, overvalued houses and credit tightening up
globally, IMHO it would be quite foolish to commit to a house now.
Look what has happened to Rams and Centro, when they ignored the
fundamentals of the market!

A quote from your URL. Perhaps Ross got it wrong:

*The time to move against negative gearing will be when the
looming over-supply has finally caught up with the rental apartment market. When the boom has
busted, prices have collapsed, vacancy rates are way up and rents have fallen even further.*

Actually, Yabby, I do accept that from an investor’s perspective, rental rates for houses in many suburbs are quite low. This would seem to indicate that a lot of investors are relying on negative gearing for the income loss offset. If that offset wasn’t so generous, no doubt some of those investors would get out of the rental market and put their properties back on housing market, logically bringing down the price of houses. A simplification to be sure, but it’s hard to see how, say, modifying negative gearing so any shortfall between rental income and mortgage payments on existing properties was only 50% tax deductible could make the housing affordability situation worse. Of course you could argue the other potential outcome is rental rates going up, but from a renter’s perspective, rents are already quite high, and were they to go much higher, many renters would simply give up and move back in with their parents.

I don’t particularly have an opinion on Ross Gittin’s article, just felt it was worth presenting an alternative view on your claim that rolling back negative gearing would likely have unfavourable consequences.

My sister’s partner is also over 25 – I'm not sure the exact history, but he went back to uni to do second degree for various reasons. I can assure you that most starting school teacher positions in Victoria do not earn 50k a year (I actually couldn’t find any starting positions available on seek.com.au – bad time of year I suppose). FWIW, my other sister (who’s over 30) is in a similar position, despite having already saved up a sizeable deposit.

I agree that now isn’t perhaps the greatest time to buy, and I'm reasonably sure that within the next 10 years the housing price affordability crisis will eventually sort itself out, just not necessarily in a very nice way, and, unless some changes are made to government legislation, there’s every chance the same problem will reoccur in the future (though the changing demographics will inevitably make it less dramatic).

Wizofaus” If that offset wasn’t so generous, no doubt some of those investors would get out of the rental market and put their properties back on housing market, logically bringing down the price of houses.”

That is what would happen. However, such a move would reduce the availability of rental properties and not all renters would qualify or choose to be owner occupiers. For those folk, faced with a significant reduction of available rental housing and presumably an smaller reduction of rental tenants, the rental rates achievable by investors would escalate.

I would note, there is nothing “generous” about the negative gearing attributes applicable to housing. The rules for treatment income of expenses as they pertain to a housing investment are identical to investing in shares, futures markets or running a business.

Indeed, I have seen where significant “negative gearing” opportunities exist for those who “borrow” to buy shares, the rent is replaced by dividend and the capital gain can be a lot higher than from housing. Unfortunately, “risk” as it applies to the volatility of shares is far higher than housing and I have seen some folk go seriously broke in the process, losing their Owner occupier property as well as the shares.

Keating tried to fiddle with the tax laws of property investment negative gearing in the 1980’s.

The outcome was a reduction in the availability of rental properties as investors “fled” the market which, in turn supported a rent rate increase for the remaining investors to offset the loss of tax deductibility. In short, supply and demand, fewer rental properties at higher than before rental rates.

What you are doing is creating a once off opportunity for those wishing and able to buy today, at the expense of current investors and future tenants. Such manipulations, whilst seeming so “reasonable and egalitarian” often have hidden consequences which come up to bite one on the bum..

Yabby,

By way of explanation re. my comment about Keating’s negative gearing 'experiment'. The “Complete Lie” isn’t yours - it belongs to the property lobby in 1985-87.

While we may differ re. views & opinions that one was professional disinformation

The current vacancy-rate is lower(lowest-ever) Current ATO neg.gearing-payout is highest-ever.

I’ll-clarify-later (Word-Count) sorry.


_________________________________________________________

Col Rouge,

As regards your observation:

“the negative gearing loss is generated from the costs of ownership of the investment property exceeding the income earned.
Thus the tenant is being “subsidised” by the investor for their occupancy of the investment property.
This is the real hurdle to FT Buyers, the immediate extra cash outlay between renting and buying because no investor is there to subsidise their tenancy.”

With respect, (as I have previously noted) the only way that a landlord can subsidise a tenant is by charging a rent that is below market value.

As you will no doubt already appreciate in a competitive market, ‘market value’ is a price that is as high as the market will bear.
As investors generally seek to maximise their returns, landlords will almost invariably charge a competitive rent that compares well with similar tenancies & no less.

Some landlords have never benefited from negative gearing. Their tenants as such cannot possibly have been “subsidised” by this tax concession. In any case they all tend to charge the same market-value rents as anyone else.

Normally, rental values limit prices. An excessive price relative to “the income earned” increases “the costs of ownership”. A high enough price will render the investment unprofitable as a rental property.

A tax concession that allows some investors to offset rental income losses diminishes the price-inhibiting influence of rental values and distorts the normal balance of the market.

In an economy where tenants are paying market value rents, investor tax concessions that add to demand pressures & render loss-making tenancies viable are “subsidising” inflated prices (vendors) not tenants.

The extent of the “the immediate extra cash outlay between renting and buying”
is an indicator of the degree to which properties are overvalued.

Continues,,,