Labor, despite going to ground on its negative gearing policy is in with a real chance of winning the forthcoming election and, if they do they will try to implement their NG policy.

So if they do win, and they do get their policy through, how do you on this forum think it will effect rents, and why.

Hi Butch,

I don't pretend to understand all the ins and outs of negative gearing, but I should imagine that amongst the consequences of disallowing NG, i.e. deducting some of the expenses of purchasing, maintaining and improving a rental property from one's taxable income, would be either:

* forgoing any major renovations or even much upkeep, hence providing a deteriorating property for tenants at current rents; OR

* going ahead with renovations, repairs, paint-jobs, etc., and raising the rent; OR

* not bothering to buy an investment property until one had a much bigger deposit, and therefore lower mortgage interest payments, hence deferring purchase and dampening down the creation of more housing.

Either way, unless I'm missing something, renters come out of it all much worse off.

I know that it's fun to stick it to the 'wealthy' - bastards ! - but I wonder how this is playing to the more affluent Greens, at least those who are putting their savings into property.

Cheers,

Joe

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Ok, for those who can't remember 1985 when Paul Keating stopped neg gearing (and reintroduced it in 1987 when he realised what a big mistake he had made)

Firstly , if you alter the tax advantages of owning a investment property, it becomes less attractive, so less Mums and Dads will own an investment property, meaning more demand on government housing and rents increasing (demand exceeds supply)

Secondly, 1 in 6 Aussies are employed in the building industry, if neg gearing is altered, less houses are build, meaning higher unemployment, meaning more people renting and rents go up (demand exceeds supply)

Thirdly, if neg gearing is only for new houses, when does a new house become old? 1 year, 5, 10? When you go to sell the house, it has lost value as new investors wont buy it as there are no tax deductions. So, knowing my NEW investment property will be worth less in the future, I wont buy an investment property at all. The only reason you buy an investment property is for capital growth (not for the 4% gross yield)

Fourth, the majority of Australians have a mortgage based on borrowing from a bank at say 80 or 90% LVR, if house prices drop, the banks debts increase and many credit unions and banks would become insolvent. So, unless they get thousands from their customers to reduce their debt exposure, they will make borrowing harder, so first home buyers will have to save a greater deposit than they do now.

So, short term house price drop, higher rents, more unemployed, harder to get a mortgage and still more housing unaffordability.

The simple answer is remove all taxes from building a home (levies rates taxes stamp duty etc) that will reduce house prices by 30%

Not quite right on negative gearing Joe.

You can not get tax deductibility on any of the up front costs of investment. All purchase costs, & any renovations or improvements have to be capitalised into the value of the investment. Any future improvements have capitalised, that is, added to the value of the investment.

These capital costs can then be depreciated, & the depreciation is tax deductible. Repairs & maintenance are also tax deductible, as is interest on any borrowings, & payments to a letting agency rates etc.. It is thus the costs incurred in earning the taxable income, not the cost of establishing your asset that is tax deductible. This is exactly the same in every business.

I see new house prices going ballistic, simply due to fierce competition from investors and first home buyers however many FHB will be locked out due to banks tightening their lending criteria, simply due to the unknown value of the new home once its no longer new. For this reason part of labors policy must include a shift in the grant back to used homes as well.

I see rents skyrocketing simply due to the math.

Eg, say a home valued at $500K today drops by 20% (a recession trigger) to $400K, an investor will want at least an 8% return, otherwise the risk is too high. So the rent for this devalued home will go from 3% of $500K, to 8% 0f $400K, or from $500 p/w to %650 p/w. If it didn't, why would anyone invest! After all, owning a rental has lost a lot of its glam, with increased rights of tenants, decreased rights of owners and increased compliance costs.

In my view this is a bad policy that will backfire however I fear damage has already been done just by the announcement made by Bill Shorten, party due to the fact that they (labor) have stopped talking about it, which means nobody knows enough about it.