Col Rouge twice triumphantly declares that "the tenant signed up for occupancy, not house price fluctuations."

Yep. In other words, the tenant signed up to subsidize the landlord's capital gain.

Col continues: "No investor would sensibly forego [sic] additional benefit to a tenant unless the tenant was prepared to pay for it."

Correction: No investor would concede part of the capital gain to a tenant unless the tenant paid for it OR the initial purchase price were lower, or some combination thereof.

I think the lowering of the purchase price would be the dominant effect, because the prospect of sharing in the capital gain would not of itself constitute a cash flow from which rent could be paid, while banks would be hesitant to lend against such "collateral", especially to tenants.

But that's academic, because my intention is not to promote a capital-gain-sharing scheme as a preferred policy, but merely to debunk the ridiculous proposition that the party who gets the unearned capital gain is subsidizing the party who doesn't. (Notice that Col left capital gains out of his "symbiosis" analysis.)

In his next post, Col dredges up the old anecdote about the Hawke/Keating government quarantining negative gearing in July 1985, allegedly causing rents to rise. He conveniently fails to tell us that negative gearing was not merely confined to new construction, but disallowed altogether. He also fails to tell us that the reinstatement of negative gearing in July 1987 (not merely for new construction, but across the board) gave us a residential and commercial property bubble, which popped in 1989, precipitating the Recession We Had To Have (1990-91), of which the most obvious symptoms peaked in 1992 or 1993 (unemployment being a lagging indicator of recession).

(Smith-continued from prev. post)

Col Rouge.

With regard to negative gearing, the problem that I find with your observation that first-home buyers and other people of modest income:
“have the same opportunity to purchase multiple homes” is threefold:

You would no doubt be aware that negative-gearing is most effective for individuals with incomes that attract the highest marginal rate of tax - the richer you are the greater the advantage.
Conversely, the relative disadvantage applies not only to first-home buyers but investors of lesser means.

More importantly though, while the investment property market may be “open to everyone” as you say – not everyone can be a property investor, for the simple reason that if most people were landlords there wouldn’t be enough tenants to go around.
Seriously, if say, 60% of people owned investment properties the inevitable tenant shortage might adversely affect property values.

It is in this respect that the property market differs greatly from finance markets for example, where most people, either directly (or through superannuation) can participate.
As it is residential tenancies require tenants who remain tenants until they become first-homebuyers.
The relative number of owner/occupiers (the rate of home-ownership) either increases as more first-homebuyers enter the market or decreases as the level of investment rises.
The rate of home-ownership determines the balance in this interdependent relationship. Investors, tenants, and homeowners all play a necessary role.

Which is why I am opposed to a tax policy that discriminates in favour of investors and disadvantages other competitors in the housing market.

Furthermore this relationship cannot be directly compared with other investment markets where all the competitors are investors.

I do not accept the idea that owner-occupiers enjoy tax-free capital gains for the simple reason that owner-occupiers don’t make capital gains.
They use the proceeds from the sale of their one & only property to buy their next home. The value of that property rises and falls in parallel with comparable homes in the same market.

That is why financial commentators (conservative ones included) often refer to the rise in owner-occupier property values as “illusory wealth”.

-MrSmith

So few words, so many things to say!

Firstly Wiz, I AM a 20-something, as are most of my friends. I bought my first house at 24. Most of my friends of the same age are very similar, buying first homes by the age of 25. I dont consider myself to be that superior in intelligence, so if I can do it, why the heck cant most others?

"I consider property investment to be essentially about deriving one's income at someone else's expense". Daggert, it costs to have a roof over your head. You either pay rent, or you own it. It has generally cost considerably more to own it. Property investors would not have a market if the price of renting was not considerably below the price of ownership.

Cutting taxes and other costs on new property for developers would not result in more housing, or cheaper housing. The biggest concern is land supply, AND distance from the CBD (which has been stated over and over by sheep to scared to wander from the mob). The supply of new homes would be roughly the same, AND the price would be the same (the market is currently prepared to pay it, so developers - the true millionaires - would pocket the difference).

Smithy, we are never going to agree. At some stage owner/occupiers take their capital gain. They might do it with intent, looking for opportunity to trade-up, they might do it when moving location, they might do it when the family has grown up and they choose to downsize. Groundhog day (arguably the dumbest movie I ever started to watch) is going to continue - I understand what you are saying, but I dont agree with it.your logic would be ok, but it ignores the complexities of the property market, and assumes that all property values rise or fall at the same rate. It also ignores that fact that there are sometimes sellers in a hurry to offload who will drop their price in order to do so (thereby creating opportunity for someone else). Eg I got my new house for around 80% of its normal value, because I was prepared to take on a problem that other people were not. With a bit of work and the gain from my previous property, I would make an immediate gain of around 50%, even with prices remaining static. Actually I could spend $40,000 and still only have paid normal market value for the condition it was in prior to any work being done. But I spent 2 years looking for an opportunity, as I do see housing as an investment, like any other. I can now choose to spend my $40,000+ and live in a really nice 3-bedder, or spend it, sell and have enough extra to buy a fairly new 4-bedder (if not build exactly what I want). Of course if everyone tried to do this, then the opportunities wouldnt be there. But they are not prepared to put in the time and effort (into making tax-free dollars work for you), so that's my good luck and reward for making the extra effort.

Wiz, I think quite a few people invest in the housing market, as it’s the only
way they know to protect their savings from inflation. They can physically
see their investment, they don’t understand or trust the share market. Bank deposits
are not an option, as they are not compensated for inflation loss. I think that’s
a really bad mistake in Australian tax policy, no wonder we borrow so much
from overseas.

My problem with your theory is that when I listen to developers like Harry
Triganoff ( can’t remember the spelling lol ) and similar, they rely on investors
to drive their building of units etc. When investors go away, these guys stop building
and investors don’t invest, where they think there is no capital gain to be had in
the longer term. So if established houses drop in value, why bother to build
new ones ? IMHO you’d get less accommodation built and rents increasing,
but yes, a few people would get a cheaper house. That’s a short term solution.

If more people saved money, the cost of capital would reduce, but they won’t
save whilst they are being screwed by inflation and not compensated by the
tax system. Better off to just spend it and live it up!

Here is what WA teachers get paid. We are trying to steal your teachers :)

http://www.det.wa.edu.au/teachingwa/ccm/navigation/returning-teachers/attractive-salary-options/

Some good news. Rudd has seen the light and reached an agreement with
our premier in WA. The economy here grew by 7% last year, they can’t even
find staff to make cups of coffee here ! So more 457 workers are going to come
here to WA where we need them, perhaps less to Melbourne and Sydney. That
should take some pressure off your housing market too. The last Govt refused
to acknowledge the problem. I guess we were just their little cash cow.

Perhaps your sisters should just see the light and move to West Australia :)

Yabby wrote: "... The economy here grew by 7% last year, they can’t even find staff to make cups of coffee here ! So more 457 workers are going to come here to WA where we need them, perhaps less to Melbourne and Sydney. ..."

I see that Yabby is, in this thread, mindlessly revelling in the unsustainable economic growth which he acknowledges elsewhere is threatening the future for our children.

How does he sleep at night?