Libs Rule Out Neg Gearing Changes

I agree Sash. It is very timely, should it happen. It'll time around the same time that the excess supply of units will start dumping on the market. I did a write-up of possible outcomes of the NG changes here, worth a read if you have a sec.

Mostly my own speculation, but it just follows the logic of things happening in the property markets around the same time of the changes.

 

If you believe growth will diminish as a result of theses changes I assume you could procure a valuation at the crossover point to protect your discount up until the day of crossover.

 

93% of current investor loans buy established homes so presumably some % would drop out of that market because the sums don't work without NG/CGT as they are now.

The total pool of credit shrinks and so prices of established homes must drop.

Some investors will go to new stock (rising from 7% currently) so the rate of new stock may increase, although with the new foreign restrictions we may see a decline.

But I imagine many investors simply don't have the will/knowledge/care to build/develop and so their money will end up in the stock market.

 

Do any of you have the conviction to write a research paper, show your evidence, put your name to it and release it to the public?

The Grattan Institute did exactly that. I've seen no one even try to comment directly on that report. All this commentary is anecdotes.

 

The proposed changes are similar to what happened in USA 1986. The outcomes should be similar. I had done a comparison earlier
Bill shorten poised to take negative gearing.
The impacts of elimination of passive income tax shelters were:

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  The concerning bit is that proposed changes to NG and CGT are not occurring in isolation, and the overall impact will be compounded by Basel IV (to be finalized in end 2016), FDI exodus in both the mining and plausibly property sector (impact is already starting to show in statistics), deflationary economy, apartment glut, highly leveraged property sector. Ironically low interest rates might reduce the severity of downturn.
  
  These macro-economic factors are not cyclic but structural and the so called cycles in property market will be severely disrupted. It would be interesting to see any historical evidence, when all these factors existed simultaneously and the impact it had on the cycles.
  
  The time to buy is when there's blood in the streets- Baron Rothschild
  
  

 

I have commented extensively on the Grattan Report before. I think it does quite a good job of detailing the problem with inequities in the system although I am not convinced by the argument that NG increases house prices. If you read the report it does outline that supply is more important on house prices than NG or CGT concessions who's:

effects on prices are small compared to factors such as interest rates and supply of land. [page 2]
​

Having sufficiently outlined the problem, the report discusses possible solutions with the stated aims of: reducing house prices and making the system fairer.

Labor's Positive Plan to Help Housing Affordability is based on the Grattan Reprt. I have discussed my concerns with this before:

From 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.​

Option 1) buy a new property you can negatively gear

Option 2) if you have investment income tax liabilities, you can buy a property and negatively gear it against your investment income

Option 3) if you can afford to carry the loss, you can effectively negatively gear by accumulating losses and then deducting them from the final capital gain on the investment. This is a long play NG strategy but the tax outcomes would be similar to the current system

Higher wealth individuals with more investment income will benefit from this policy. The policy will allow them to continue to effectively negatively gear. Individuals with no or low investment income will be disadvantaged by this policy.

Back to the Grattan Report. Do the reforms achieve their stated goals of lowering house prices and making the system fairer?

Our proposed changes will improve housing affordability – a little. We estimate prices would be up to 2 per cent lower than otherwise. [page 2]
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And any equity concerns?

One concern with quarantining is that it will favour investors with more diversified portfolios. This is because investors with other positive investment income can make use of the loss write offs immediately, whereas those with only one loss making investment will have to wait until the income from that investment is positive. There may arguably be an equity concern if wealthier investors tend to be the ones with more diversified portfolios. [page 38]
...
And in any case, even if those on somewhat lower incomes are disadvantaged slightly more, policy change should still be pursued. Not every principled policy change will be progressive in every respect. [pp 38-39]​

The outcome of the policy is to advantage the wealthy and disadvantage those on somewhat lower incomes. I don't count this as making the system fairer.

Positive plan to help housing affordability

https://grattan.edu.au/wp-content/uploads/2016/04/872-Hot-Property.pdf