Speculators schmeculators. Yes, it is good to see this scrawny scapegoat dragged out of the cage again. And how about all those women getting paid jobs and putting all that extra money into the market? Now hasn't that totally stuffed things up?

Young Karl might like to consider the effect of relaxing the development restrictions on residential landowners. Then all of those schmeculators might suddenly find themselves with more competition. For example, he might ponder how it is that some landowners find themselves able to subdivide, but are deterred by the substantial conditions imposed, while close by a rabbit warren of shoddy shoeboxes is stapled together, and the development is unrestricted. Karl might also consider that the profits derived from the property market are more than offset by the cost of providing infrastructure to cope with the increasing population. Thus it is a driver of inequality in Australia as the cost and profits are not equally distributed (Karl at least has a partial understanding of this point). And, of course, without governments pursuing a policy of mass immigration, there would be no housing affordability crisis.

The tax concessions given to property investors is responsible for a great deal of housing (as are women in paid employment). At least Karl might try to understand the factors controlling the market better before villifying these people.

A land tax will not work.

A land tax can only work where it meets economies of scale. That means it can only work in the major coastal cities of Australia and nowhere else.

It deprives those that manage to pay off their mortgage or first home buyers, etc of having the security of an actual home unless it becomes a business, ie. becomes productive.

It deprives those in country-coastal towns and even more of those that live inland.

The reason there is so many speculators on land and housing, primarily in housing is because it is the only way to make any significant money. You can do it about every 10 years as Real Estate’s about the only product that you can buy that appreciates. Arguably the stock market’s another way but that takes at least 20 years and you have to avoid watching your stocks every minute and hope someone doesn't buy out the companies your stocks are in so you end up with nothing.

When I see TV shows like Hot Property the fools that buy a house for $700 000 and over a million dollars… Generally because the house they are buying is only worth it dueto the foolish idea of location, location, location, ie. usually beachfront. Even more so when the house depending on the size would only cost around $200-300 000 to build. Its silly.

I don't own property but I know there’s no way in hell that you can ever possibly save enough to buy a home outright and live within reason on the average wage. Sure you can get a mortgage but then that's another 30+years to pay off. And in today's economic climate where job insecurity is paramount and rising interest rates. Foolish notion.

The only solution is to do what is suggested in the article, get multiple-properties, pay off the principal-of-interest on the loans and every 5-10 years sell the house. You may also need housing upkeep and make a loss, as it is money out of your pocket, hence negative gearing. It is the only way to get ahead.

"However this obviously is limited in both an absolute and relative sense."

Lev, Australia is one of the least populated countries on earth,
yet people can't build houses as land is too expensive? Clearly
those Govt planners have screwed up badly, it makes no sense
at all.

Nic, a house is the largest investment that most people will ever
make and of course its an investment. Any work you do on it yourself,
will increase its value and you can cash that in tax free. Go
to work and you pay full tax on your wages. Given the tax free
nature of houses, no wonder people speculate with them.

You are free to buy a run down old dump, do it up as you live in
it and cash in all the way. You are free to buy a house in a slum
closer to the city and as the area is rebuilt due to high income
yuppies wanting to live close to city centres, cash in, all tax
free.

Lastly you have contradicted yourself. On another thread I kind
of recall you telling me that you don't mind paying your last cent
of tax, as its so well spent by Govts, or words to that effect.
Now you tell me you won't invest in shares, due to the tax.
You should be thrilled to pay more tax, given that you think that
it is so well spent :)

Whether or not it was with the help of negative gearing, when it's repeated across the country, you can see what it's doing to house prices. Also, I had a gut feeling that simply subdividing more and more land on the fringes as some groups want wouldn't much help housing getting more affordable. Gee! If your study is just for one ward of a council, you've got to wonder how much vacant land is sitting around Melbourne unused!

Posted by Country Gal, Friday, 30 November 2007 10:02:45 AM

Whilst I dont deny that speculation has an impact on housing availability and affordability, the author has let at least one furphy slip into the article...
"An example is 62-64 Geelong Rd, Footscray. The property was bought for $510,000 in 2000. Just seven years later it was sold for $970,000. What did they do? Nothing - the property was left vacant. Are such paper shuffling profits justified? Should they be supported with low capital gains and negative gearing? Should they pay less tax than the lowest wage earners?"
The prima facie taxable gain on this is $230,000 (50% discount for holding for more than 12 months), with tax at a marginal rate of 46.5% - that's hardly lower than the lowest wage-earner. Even assuming it was jointly held, the tax rate would still be 40.5%. AND there is no negative-gearing allowed if the property is not available for rent. If its been deliberately withheld from the market, interest is not deductible (it will come into the CGT calculation, but its effect as a deduction is then effectively halved).

Added to that it is not paper-shuffling profits. The investors take a serious risk that the market will fall (as it has in Sydney for example), and they could end up in a loss situation. They also tie-up their capital for several years, that could be earning money else-where.

Land tax is paid at the same rate on vacant land as it is on income-earning land (its LAND tax, not development tax).

Posted by Country Gal, Friday, 30 November 2007 10:02:45 AM

Question
What is the exact number of dollars tax paid on your above comments?
and is it more or less or eaqual than someone actually working for living?

"Given the tax free nature of houses, no wonder people speculate with them"

Exactly - the tax structure encourages speculative investment into houses at the expense of other forms of investment that would almost certainly be better for the economy in the long run, and certainly for the sake of housing affordability.

Buying a dump and doing it up *is* genuinely adding value to a property, and damn hard work, and you deserve every cent of the profits. But the vast majority of profits that speculators make out of the housing market involve minimal, if any value-adding.

Just because I believe one form of tax is too high doesn't mean I think that the total amount we pay in tax is too high.
I'm not qualified enough to make a serious assessment of the various ways in which taxation could be better structured, although one option would be to significantly cut capital gains tax, while adding a carbon tax, in such a way that the outcome was more or less tax-income neutral (not my idea by the way, it is one Al Gore has promoted though).

I assume you weren't being entirely serious to suggest I should be thrilled to pay more tax - but the reality is that I would be happy to if I knew it would help ease some of the social burdens our country is facing. This is purely selfish motive - I don't want to be living in a country with huge income and opportunity disparities, with an entrenched "working poor", or indeed where many of my family and friends are disadvantaged by a system that often doesn't work in their favour. In other words, I value the freedom of living in a reasonably egalitarian, cohesive society far more than the freedom of being able to choose exactly how to spend every cent I earn. I'd also like to think most people would agree with this if you put them on the spot about it. Traditional "libertarians" wouldn't of course, but I personally think most of them have a very narrow, short-sighted notion of liberty.