Jamie Alcock on Negative Gearing

Discussion in 'Property Market Economics' started by Francesco, 18th Jun, 2016.

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  1. wogitalia

    wogitalia Well-Known Member

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    You moved the goal posts so I responded to the new arena you wanted to play in, that is all I did.

    You literally said "mining towns don't count", verbatim. That they go down as well doesn't change that when they went up by sometimes as much as 15000% massive amounts of tax was not paid as a result of the concessions. I had a client, who mostly through pure luck, had a property they paid 45k for sell for 1.8m in 2.5 years. They didn't even have time to get their plans through the local shire to add a warehouse they wanted onto it before they'd received that offer and obviously swallowed it whole.

    I'll bite even though I never mentioned NG in that post so not sure why it would be dragged in but how exactly is NG doing any of those things?

    Would the houses sit empty if NG didn't exist? Would people charge less rent than they could otherwise get if NG didn't exist? How does adding an extra burden to the government help? Those investments would be just as viable without negative gearing.

    NG is a taxpayer funded escalator instead of people taking the stairs, they get to the same place but the government had to spend ten times as much to get them there.

    NG is a government expense that encourages individuals to lose money so they can pay less tax. The government burden of NG could be greatly reduced and it wouldn't change a thing other than that.

    In fact you could go further that NG has negative consequences of greatly encouraging Australia's excessive debt levels which are rapidly becoming a major issue.

    The concession reduces the assessable amount of those gains by 50%, so on any gain that it applies the government is receiving tax on only 50% of the income.

    Say you make a $100 gain, at a tax rate of 30% that would be $30 of tax revenue. If that gain is reduced to 50% purely by a concession then that gain becomes $50 and the tax recovered becomes $15.

    Extend that further to the main residence exemption where that tax goes from $30 to $0.

    It's a massive blackhole of lost revenue, the CGT discount is the 6th biggest government "expense" and will cost nearly $7b next year and that's just the discount exclusive of all the exemptions and other components.

    That is just pure waste in lost revenue and for what?

    Who argued they don't? You know the difference between the cashies and the CGT discount though? One is a government policy that they actually choose to have for no good reason and the other is something they spend millions trying to stop. They're extremely active in shutting down the cash economy because it costs them in lost revenue and yet they're perfectly happy to just hand back $7b and growing a year in CGT discounts.

    On the second point I once again have to ask, what does the CGT discount have to do with any of those other items? Would they suddenly go away because they removed the CGT discount? They're completely irrelevant to the CGT discussion because they exist entirely separate to Capital Gains and they'd be paid whether an investor or owner-occupier was the owner.
     
  2. Bayview

    Bayview Well-Known Member

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    If you are happy for the rent yields to double; then yeah; bring it on.
     
  3. Angel

    Angel Well-Known Member

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    Yep, I think so. Although very few on Property Chat are going to rush out and start buying new builds in outer estates just so we can access NG. We didn't before and I cant imagine any reason why we would suddenly start in the future. We brainiacs here in Realityland already know that one wiff of a H and L Package Spruiker and we head for the nearest cafe for a networking meetup and to warn off the newbies.
     
  4. Bayview

    Bayview Well-Known Member

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    If the prices stay the same - and either a FHB won't buy it (because they can't afford them) and/or an investor won't buy due to rubbish yields...yes they will.

    Or; only the disgracefully high income earners would bother because they can slam a mountain of expendable income at them to carry the neg cashflow...aren't we trying to make it viable for all levels of income - not just those who don't need it?

    Maybe the prices will plummet, and then the FHB's might be able to afford them and buy?

    Only if they are cool and near the CBD of course. :rolleyes:

    Don't hold yer breath on that one.

    Personally; I would love for house prices to plummet and rent yields skyrocket; I don't own many IP's anymore, so it would signal a massive BUY for me. ;)

    I can become an evil greedy LL and push up the prices and cut out the FHB's again. :p

    If I hold 10 IP's and/or or $1mill of shares, and never sell; how has the Gubb lost revenue?

    They didn't get ANY revenue if I don't sell.

    I may decide to continually leverage off all of the above and add more, and more.

    No GCT, but they get all my Gubb fees, GST, Stamp Duty etc along the way....waaay more revenue than yer average dole bludger.

    If I sell; they get SOME.
     
    Last edited: 29th Jun, 2016
  5. wogitalia

    wogitalia Well-Known Member

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    This response makes no sense.

    Why would an investor not rent out an investment property because NG isn't there? I could understand why they wouldn't sell it for less than what they want and I can understand why people wouldn't want to buy it for myriad reasons but why would the investor who owns a rental property want to intentionally leave it vacant and, thus, increase their loss on that property because you remove what minimal value that loss had in the first place?

    Are you honestly saying that the only reason that the investor bought the property was so they could, literally, lose money to save less than 50c on the dollar of lost money in tax and that their response to that would be to, umm, lose more money?

    Are you seriously advocating that people would intentionally leave their rental properties vacant so they could have a greater non-deductible loss on their hands in response to negative gearing being scrapped?

    I could buy the arguement that removing negative gearing might lead to some opportunistic landlords increasing their rental prices, that one at least makes sense but to suggest that the response would be to evict tenants and leave them vacant pretty much flies in the face of all semblance of reason.
     
  6. Angel

    Angel Well-Known Member

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    I have just confused my computer. You see, one of my closest young rellies is running for a senate seat this weekend, for the Socialist Party. I went on Facebitch and wished him well.
     
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  7. mrdobalina

    mrdobalina Well-Known Member

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    I wish NG was abolished. I would buy more development sites if their prices drop (they are typically higher land content and lower yield), and develop into new housing. Everybody wins :)... and the whingers move onto something else to whinge about.

    Unfortunately I don't think Labour will get in to do so.
     
  8. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    • And you know that for a fact...how...two out of context and amply rebutted rental graphs from 1985-87. Edit Fact check: Did abolishing negative gearing push up rents?
    • Yield = Rent / Price . Guess two ways by which yields can vary, unless you subscribe to the theory that in Australia property price is one way street without any roundabouts, traffic lights and speed limits. Some discussions about lack of gravity in Australia is here Why Australia really IS different
     
    Last edited: 29th Jun, 2016
  9. Foxy Moron

    Foxy Moron Well-Known Member

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    Ha. That must have hurt. Even by my standards you seem a bit to the right of Genghis Khan!
    But democracy is a wonderful thing.
     
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  10. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Read wogitalia's response above.

    • Let the market decide the asset price without preferential tax treatment of one set of participants.
    • However if history (pick your favourite bust) or human psyche (greed vs fear: fear is stronger and will almost always win) are any guide, assets prices will plummet in bust. How many property buyer's are there in mining town now ?
    • Unsubstantiated smear on the victims by the perpetrators is not something new. But you take it to a new low every day.
    • Have you made up your mind about the self confessed rorts (double dipping-NG and pensions, dodgy deductions, international price transfers) indulged in by your fellow NG and CGT profiteers. Happy to re-link the self-congratulatory quotes on ripping of the tax-payer.
    • You assume, the prices will plummet in isolation and will be the sole determinant of asset acquisition.
    • What about the other related factors:
      • Portfolio LVR effected by regulatory change.
      • Inter-asset class comparison.
      • Market sentiment.
      • Lending Institutions risk valuation of the asset in the new tax regime. How much will the banks be willing to lend and on what terms ?
      • Overall impact on the economy.
      • Domino effect on ---say foreign investors
      • Black swan events
    Of course... one participant will decide the outcome of the whole market.

    • CGT happens after sales and that was the discussion.
    • The government is loosing 2.5 -3 billion a year on NG.
    • Like earlier, you alone will not decide the market movement. Do you think everyone will be able/willing to keep the IPs when property prices drop, NG changes reduce the serviceability and CGT (if profitable) exemption is halved
    • The above revenues would not be effected if it is Owner Occupier or investor.
    • The bludgers are the ones who are rorting the tax system through their double dipping (NG and pensions), dodgy deductions and tax structures, international price transfers and money laundering.
     
    Last edited: 29th Jun, 2016
  11. HUGH72

    HUGH72 Well-Known Member

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    Another day another endless stream of posts about policies soon to end up in the trash can.

    To the NGing haters, give it up, the coalition will be returned with a reduced majority.

    3 days to go...:p
     
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  12. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    And what happens at the election after that, and the one after that?
    How long will the homelessness of the young and tax rorts be ignored by the politicians, especially when the voting demographics tilt the balance over time ?
     
  13. Bayview

    Bayview Well-Known Member

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    You are agreeing with me...everyone keeps sprouting on about how the house prices have gone a million miles an hour here on this forum, but lets look at Perth and NT, SA right now, Tassie, and don't forget Sydney back in the mid 00's where no-one was buying.

    No I don't - it was wishful thinking....

    Look at it this way; a decent number of Mum and Dad IP owners buy an IP that is neg cashflowed...it has to be because the vast majority of these investors are not wealthy, and don't have a lot of spare cash to invest..they may have a little bit, but most will be using some equity in a PPoR or possibly from their business, plus another loan to get the purchase done....almost 100% finance in many cases...and if we are using historic Cap City rent yields of circa 5%, you cannot get a pos cashflowed IP anywhere in a Cap City with that set of numbers.

    So, for these investors NG softens the blow from what would probably a largely unaffordable investment to hold after all the fees and charges, rates, loan interest etc is factored in.

    Take away NG, and many of these investors will struggle to hold the IP...add to that a few unforseen larger repair bills, a few nasty tenants - and you have a recipe for those folks wanting to get rid of what appears to be a dud investment and lots of hard work and angst for bugger-all return.

    They may cling on if they see some ripping CG in the short term to bolster their resolve, but if not; they will sell it - or try to put the rents up to help.

    Now; the argument from the anti-NG crowd is that this will allow more homes for sale for PPoR (and FHB) buyers...less investors competing, and investors selling off their IP's cheap to escape the cashflow bleeding.

    For a short time, we might see a slump/correction as the Mum and Dads exit the market, which will create a bit of a frenzy while the houses are selling cheaper, but they will be forced up again by the frenzy - it always has, and always does....some of the more cashed-up investors will be circling as well during this time and buy up a few more....maybe not.

    Meanwhile; every year there are a new pool of renters entering the market - school leavers, immigrants, pensioners having to sell their PPoR, etc..the pool of renters is not diminishing just because a new group of FHB's have bought the cheaper IP's being sold.

    So, you have less rentals available in the demand areas, but the same number (if not more as the population grows).

    Vacancy rates will drop down, and demand will increase for fewer rentals.

    This whole idea of providing NG on new builds won't work - how many Mum and Dads will have the financial resources to buy in an existing suburb, bulldoze the house and build 3 townhouses on the block? Because this is what they will need to do to qualify for the new NG rules.

    Or; buy a new already built townhouse off a developer that will qualify, but the rent yields are terrible on these places on those metro areas.

    And how many renters want to live out in the newer Estates where the Mum and Dads could afford to buy and qualify for the new NG rules?

    Most of those newer Estate homes are targeted by the FHB's, the young families etc - who are buyers; not renters.

    All we will see is a mass of investors buying these further out brand new houses as IP's, and no/very few renters to fill them up...higher vacancies and dropping yields, maybe even some forced sales as they find they cannot rent, and have to sell qick to get out of financial trouble...good for the FHB's looking to buy...

    But is this a scenario the Gubb has in mind? To see investors do their dough all over the place? We already see it too often as the various Cap City apartment markets overheat-supply from time to time and then have to correct.

    You are agreeing with me again.

    I have personal experience in seeing both the CG and the rent yields go nowhere and even backwards.

    I had an IP in Highett which for 3 years saw no CG and not one rent rise.
    I currently own an IP in Kalgoorlie which saw the value increase to approx $250k at the height of the Mining Boom, with rents per week of $310, and is now sitting at approx $220k value (based on recent similar comparables), and $260p/w rent...but this was pos cashflowed from day one at purchase ($105K), and still is.

    And this has always been part of my argument with the NG haters - the NG we all enjoy is not one of the problems associated with the cost of housing.

    It may be a problem with Tax revenues - as the NG haters constantly argue.

    But I would argue that our uncompetitiveness on the world stage for manufacturing - which has seen a large decline across the entire manufacturing landscape in Aus in recent decades - is a far bigger amount of lost revenue than NG might ever be (if it is at all).
     
    Last edited: 30th Jun, 2016
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  14. Bayview

    Bayview Well-Known Member

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    I was saying that if the NG wasn't there, and the rent yields were crap on top of that; the investor wouldn't buy it in the first place.

    And if the FHB's won't buy it either because of price/position/uncoolness etc - no-one will buy it and it will sit there vacant.
     
    Last edited: 30th Jun, 2016
  15. Sackie

    Sackie Well-Known Member

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    Did my vote 2 days ago. Was walking up to the place and 2 people approached me, Greens and Labor wanting to give me forms, "not a chance" was politely uttered as I continued to walk to my Liberal man. LLL!! :D (long live liberal)
     
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  16. kierank

    kierank Well-Known Member

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    The young aren't homelessness and the there aren't any tax rorts being ignored by politicians.
     
  17. Bayview

    Bayview Well-Known Member

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    Doing mine this morning; get down to the early voting place at 8.30 and beat the hordes before they get out of bed...can' decide if I should vote for Pauline or just stick with the Libs:p....maybe Donald or Hilary can move over here and clean up our messes? :p
     
    Last edited: 30th Jun, 2016
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  18. Sackie

    Sackie Well-Known Member

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    ahh good ol Pauline..still havin a go :D

    Bayview tbh i reckon they are all as useless as each other, though i do think under liberal there might be less wastage of money than a labour government. But honestly..no matter which side of government is in power won't make any difference to most ppls lives. What WE decide to do day in day out, the many millions of decisions we make every year will make all the difference in the world imho. Governments in Australia today do not control our destiny. Only we do.
     
    Last edited: 30th Jun, 2016
  19. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    • I am not agreeing with you. Even you are not agreeing with yourself. Make up your mind if the prices will fall or not.
    • Cherry picking (spatial and temporal) isolated data pockets, does not make for a balanced argument. Pick up comprehensive national data going back at least till 5-10 years earlier than introduction of CGT exemption to establish cause and effect.
    • Examples of price drops provided are cyclic fluctuation around the trend and not in any way representative of trend caused by NG and CGT.
    • Sorry no sympathy for disproportional greed, when these mum and dad investors have deliberately set out to rort the tax system a total of 6 billion dollars a year.
    • That money would have been allocated for public good.... medical services and infrastructure. Right now it is just pushing a generation out of house ownership.
    • Investment is an individual (risk reward) decision ...currently losses are borne by the tax payer and profits pocketed by 1.2 million rorters.
    • Market will find a new equilibrium in response to structural changes.
    • Renters, land lords and better rental conditions exist all over the world (with similar issue and) without NG and CGT. Don't worry sky is not falling.
    • Scarcity and yields will always find investors whether with or without NG and CGT.
    • Taxation system usually works the other way-i.e. ATO receives taxes
    • Complete property ownership is not the only way to invest. There are other asset classes and share holdings, joint ventures, REITs are the options available if you want to remain within property.
    • Where people want to stay is their choice and dependent on their circumstances
    • ATO is not obliged to fund speculation.
    Anecdotal references are useless and may be counter productive in deciding a national policy.

    • Wrong... enough data out there to associate the housing cost with NG and CGT, but willful blindness cannot be cured.
    • Only 5% of Australians on high income are enjoying 6 billion a year rort. Compare this with the social and economic penetration of other policies funded from the same tax pool viz medical, educational infrastructure.

    There is nothing 'may'. This rort is costing 6 billion a year on documented considerations. The other plagues that this rort is hiding will be multiples of this 6 billion: Dodgy deductions, depreciation, double dipping, price transfers, trust distributions, international money laundering.

    • How much is expensive property contributing to the uncompetitiveness ?
    • If the tax rorts are eliminated, maybe other productive sectors will get their share of investments.
     
    Last edited: 30th Jun, 2016
  20. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    and someone profiteering from the rorts will be the judge of that...how about:
    • Having bikies as judges
    • Butchers heading RSPCA