Yabby wrote in response to "Why the Ruddslide" at http://forum.onlineopinion.com.au/thread.asp?article=6685#100333

"So you think that South Americans, Arabs, Venezuelans, Nigerians, etc, won’t be burning more oil, as their wealth increases? Think again. You can save all you like, they will burn it faster then you can save it."

Who knows Yabby?

Maybe they are all just as selfish and uncaring as you are, but please don't assume that they are in order to excuse your own greedy selfishness.

Yabbby (responding to Wizofaus) wrote:

“The drop in CGT was introduced to compensate for the removal of indexing, which Smithy conveniently forgets”

No, I hadn’t entirely forgotten but thanks for reminding me.
In order to qualify for the 50% CGT discount the investment has to be held for 1 year or more.
Thankfully, the prospect of 50% inflation in 1 year is remote
The newer rule encourages a faster turnover & better suits short-term speculation than long-term management of the asset.
Perhaps they should’ve stuck with indexing.

He goes onto say that:

“Building new homes is linked to the price of established homes and to
rents. People will do it, if its worthwhile. At the moment rents are simply
too low to justify it”

?

Due to record-low vacancy rates, rents in fact are quite high & have risen at a much higher rate than the CPI (as the press have kept telling us).
So if that isn't high enough to make it worthwhile it would appear that the problem lies elsewhere

There’s another problem with the idea that building new homes isn’t “worthwhile” due to allegedly low rents
Being that rents would also be relatively “low” in the market for established homes.
There is no reason to assume that rental values have a disproportionate affect on new constructions compared to other properties or that extraordinarily high rents are a prerequisite to construction activity.
This hasn’t been the case in previous decades nor should it be now.

In any case the idea that investors aren’t finding it “worthwhile” seems like a good reason to make it worth their while by reserving tax privileges for investment in new construction.

This proposal needn’t directly affect current arrangements.
It would apply to future investments
It’d certainly encourage supply. If we are going have investor-friendly tax incentives then they might as well reward the productive.

-MrSmith

P.S. Regarding Yab’s observation :

“Keating did some experiments with negative gearing. The
result was less investment in the housing industry, so nobody built
any.”

The abovementioned proposal would ensure that they did.

continues…

continued…

Which reminds me -

That old story about how Keating’s “negative-gearing” experiment drove everyone out of the market in the mid-eighties .

Admittedly (with hindsight) a similar policy could’ve been better conceived & implemented.
Nonetheless what really drove them out of the market as much as anything was a highly effective media fear campaign on the part of the Housing Industry Assoc. & other property lobbyists.
Investors were selling-up before the policy was fully devised & some of them weren’t even in a position to take advantage of negative gearing anyway (eg. pensioners with investment properties).

This whole drama was part of what became a long-running tussle between the Hawke / Keating govt. & the HIA who were openly supporting the Liberal Party.
Their motive was in discrediting the govt. as well as protecting the tax-concession.

As is often the case with rumours & scares in investment markets the perception was equal to or greater than the actual event.
Either way the policy was withdrawn well before the real impact could have been assessed

The property lobby has gone on to refer to this debacle as evidence in support of negative gearing every time the topic is raised.
They’ve never explained why it doesn’t seem to be necessary in other countries.

2007 nonetheless, is the year that fallacy was finally laid to rest.

(Once again) this year:

Rental vacancies fell to their lowest recorded level - just over 1% - less in some places & much lower than the mid-eighties.

While the Tax Office recorded its largest-ever negative gearing payout (over $4 billion)

Anyone that can reconcile those two facts with the idea that negative gearing increases the supply of rental properties has more imagination than honesty.

One of the ironies of our system is that as rents are included in the CPI - putting pressure on the inflation measure that the Reserve Bank uses to set interest rates.
Thus one affordability problem reinforces another.

Investors that benefit from negative gearing can offset the cost of their interest repayments against tax on other income.

- Mr Smith

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

The tenant is free to pick and choose, motivated by his own self interest.

The tenant agreed to rent for a rate which would cost a lot more if he were to be say, buying it.

The interests of the landlord is not a motivator of the tenant. Cheaper accommodation is.

“debunk the ridiculous proposition that the party who gets the unearned capital gain”

The period at the commencement of purchase by the investor, when costs exceed income, represents the time when the investors income subsidizes the purchase of the property (negative gearing).

You fail in debunking anything.

You are merely espousing emotional claptrap in support of an agenda which seeks to take from those who exercise work ethic, thrift and prudence (saving disposable income) and depriving them of their rightful reward. Then using those expropriated savings to subsidize the irresponsible excesses of the self-indulgent and profligate.

Re “residential and commercial property bubble, which popped in 1989, precipitating the Recession We Had To Have (1990-91)”

The property bubble of 1989 was the result of the flight of capital from the share market which crashed by 20% in 1987, not the reinstatement of NG.

The “recession we had to have” was nothing to do with any deflation in property values but the fallout from extended socialist governmental incompetence.

You are re-writing history to suit your theory, I am pleased you are not my doctor because I can easily de-bunk your diagnosis.

MrSmith “illusory wealth”

There a lot of cars and things being purchased with “illusory wealth”, so if Ford and Holden are prepared to accept the bucks, they cannot be that “illusory”

The point with first time buyers and folk of modest means, they are at the start of the ownership cycle. Ten years down the track, they will be in the same position as others, to invest if they so wish. I have said to others the first year of ownership is a huge adjustment, after that it gets easier every year.

Yabby/Country Gal, I don't doubt that if my sisters were happy to live in the countryside or Western Australia, they would be able to afford houses. Neither of them have any desire to do so, for any number of reasons. But it's simply not reasonable to state that housing is affordable as long as you are prepared to uproot yourself and give up your existing lifestyle. Given that choice, most are going to remain as renters.

Yabby, the housing market will always attract investors - there's no question about that. It's a matter of ensuring that the competition between first home buyers and moneyed investors is a reasonable one - currently it isn't.

And you are correct - the tax system doesn't hugely encourage people to save, especially when there are high levels of inflation. I hope something is done about this too.

Col, read the link to the Ross Gittin's article I posted - there is at least some debate over the degree towards which Keating's attempted changes to negative gearing affected the rental market.
And further, how you can claim Keating's government was socialist is beyond me - Howard was far more socialist in his welfare to families and home buyers (which, because it only just became available as we were first buying, helped us - but has only made it worse for subsequent buyers).

Smithy, at the end of the day, negative gearing is still about spending a dollar
to save 50c short term, hoping for a capital gain one day. What 2007 showed
is that investors aren’t silly. Given low prospects for capital gain in all but
yuppy suburbs, why take the risk of building a new house and renting it out?
Much easier to just dump that money into the super fund, as people did by the
Billions.

According to your little theory, established house prices would drop as investors
charged to build new ones, to obtain the negative gearing benefits. But of course
that would also mean that new homes, once established, would lose value, so
where would be the capital gain? So why bother to invest in the first place?
Better to look at other options to reduce tax, such as super.

The hedge funds call all this the black swan problem. Just because many have
never seen a black swan in the northern hemisphere, does not mean that they
do not exist. When they do appear, they can bite you in the bum, as many
hedge funds have discovered, when all their modelling failed.

http://business.smh.com.au/no-escape-from-the-subprime-meltdown/20071221-1iix.html?page=fullpage#contentSwap2

I remind you that Ross Gittins thought we would be swamped with new homes,
unable to find tenants. How wrong he was, just 4 years ago.

Wiz, your sisters can live wherever they want. But as areas closer to the
CBD are being swamped with evermore rich yuppies, they will have to compete
with them for housing and renting. To live there will cost extra, as we have both
rising population and more rich yuppies. It’s their choice really.

Daggett, I sleep perfectly well at night, for I have long ago realised that its pointless
to stress oneself over the things that cannot be changed. If you do, you are the
loser, the world will keep spinning with or without you.

Nobody has argued more forcefully then I have, that every woman on this planet
should have access to family planning, many would have less kids if given the
choice