Negative gearing changes

Discussion in 'Property Market Economics' started by NWH, 23rd Dec, 2018.

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  1. NWH

    NWH Active Member

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    Has anyone here experienced first hand the abolishment of negative gearing back in the 80s? How did it affect the market at the time? Why was negative gearing reinstated after just a couple of years? Is there any insights or lessons to be learned?
     
  2. TAJ

    TAJ Well-Known Member

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    I would think that many (older) investors would have experienced the quarantining of negative gearing under the Hawke / Keating era from 1985 to 1987.
    Rents did rise somewhat in some areas as was expected, but not to extreme levels as media has portrayed over the subsequent years.
    Why do you think it was reinstated? Within any market you need investment or you simply don't have a market. Property investors felt they were being short changed in this policy overhaul and as per usual it was going to play out at the ballot box, hence reinstatement.
    Has the lesson been learned...... we'll have to wait and see.
     
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  3. Islay

    Islay Well-Known Member

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    Rents did rise but it was more to do with the booming stock market and the high interest rates of the mid 1980’s. Vacancy rates were low so the high costs of funding for those investors who chose to stay invested in property were passed on to the renter.
     
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  4. Joynz

    Joynz Well-Known Member

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    Get the facts here in this well- researched article:

    Fact check: Did abolishing negative gearing push up rents?

    In summary:

    ‘While the rent increases in two cities did coincide with the temporary removal of negative gearing tax deductions, it is unlikely that change had a substantial impact on rents in any major capital city in Australia.’
     
    Last edited: 23rd Dec, 2018
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  5. euro73

    euro73 Well-Known Member Business Member

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  6. euro73

    euro73 Well-Known Member Business Member

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    Yes - one of THE great myths peddled by many on these forums.... and by just about all coalition pollies

    The facts, in a nutshell, are that only SYD and PER rents went up...and both were trending up well before the changes. well, well, well before. All other cities saw rents go sideways or decline after the changes. . ....

    whats that you say? sideways? really? Yes...really.... and just to add a little salt to the wound of those myth monkeys peddling this rubbish about the removal of NG ... when it was reintroduced - rents FELL in most cities . Yes, thats right..I said FELL.

    So the next time you read a forum member or a pollie telling you the removal of NG caused rents to skyrocket, you will know that they are talking out of their you know whats....

    Now, that doesnt mean it wont go that way under Shorten... I'm just saying that the Keating arguments used by pollies and many on here are utter codswallop.
     
    Last edited: 14th Mar, 2019
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  7. PropertyInsight

    PropertyInsight Well-Known Member

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    Did house price significant dropped due to negative gearing abolish?
     
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  8. Someguy

    Someguy Well-Known Member

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    I’m neither here nor there on negative gearing but I do think if the crowd that wants to get rid of negative gearing were to get things they way they want it would hurt themselves more than anyone else. Pretty much if investors left the market on existing property and prices came crashing down as the scenario that many are hoping, existing stock would be bought up by new arrivals and upgrades as PPOR and investment would be low quality small apartments in decent locations or low end housing in the outskirts. Well located rentals will be expensive and the people whinging and not buying will remain the same
     
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  9. euro73

    euro73 Well-Known Member Business Member

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    Im neither here nor there as well.... just making the point that the NG scare campaign is built on a proven MYTH
     
    Last edited: 14th Mar, 2019
  10. Someguy

    Someguy Well-Known Member

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    Seeing that rents are more a product of supply and demand, holding costs are not of concern for renters and have little influence on the rent paid I can see your point abolishing NG should have zero effect on rents. The only way it will become an issue is if NG changes drives investors away from existing stock then we may see shortages on rentals in areas that people want to live.

    I’m not buying the idea that current renters will become buyers should investors leave the market. Vast majority are renting because they are not in a position to get finance regardless of wether prices correct or not.
     
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  11. Deck

    Deck Well-Known Member

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    But not a shortage of accommodation, all things being equal, less renters more owners
     
  12. Deck

    Deck Well-Known Member

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    And in the 80s most investors were adding supply with new dwellings, now over 90% buy existing dwellings and add SFA supply.

    I think it s pretty good to leave the NG for new dwellings, that could boost construction a bit instead of just selling (the same) houses to each others.
     
  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Comparing the 80s and present are very very different. Pre-CGT taxes encouraged investment in property but its was far less than present due to lending curbs at that time. Investors will be encouraged by the ALP policy (and nothing else) to buy new builds which may limit housing supply growth in homes v's OTP apartments etc. It wont necessarily boost any construction as its fairly well agreed that present supply exceeds demand for years to come.
     
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  14. Fernfurn

    Fernfurn Well-Known Member

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    If labour gets in, and if they do away with negative gearing, would it be retrospective? Surely anything already in place wouldn't be involved
     
  15. Redwing

    Redwing Well-Known Member

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  16. Redwing

    Redwing Well-Known Member

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  17. Clyde

    Clyde Well-Known Member

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    I will tell you what I do know, and clear a few things up for everybody. And it may help you to see what may happen or be implemented in future. Some will also see why the period 1985-1987, and the talk of rising rents or prices over this time was unlikely to be caused by the negative gearing being quarantined, but what was more likely to effect prices and rents from 1985.

    Prior to 1985, no losses on your ip could be claimed against your wages or offset by them. We still had negative gearing and negatively geared property, but any losses could only be claimed against the rental income, not personal income or wages. The only tax benefit you got before 1985 was that you could claim a tax deduction only against the rental income of that property and not against your personal income or wages.

    It was not until January 1985 that the Hawke government allowed investment property losses to be claimed against your own wages. It was only at a tax meeting in July of 1985, that the decision to reverse this decision was made. So it was only in place for six months prior to it being removed in July of 1985. You could still claim against interest deductions against the rental income, just not against your wages. Considering this wage tax deduction against the ip had only been in place for six months, it was unlikely to effect rents or prices greatly to the period ending 1987. Which was the stock market collapse.

    What was more likely to effect prices and rents up until the 1987 were other decisions made in 1985.

    While above we saw how in July the decision to reverse tax deductions against your wages after only implementing it six months prior, in September they anounced for the first time the implementing of capital gains tax. So from the 20th Sept, anything purchased after this date would be subject to capital gains tax.

    And anything purchased prior to this date pays no capital gains tax. Even if you still hold it today and sell it you will pay no capital gains tax on that property. These decisions would be more likely to effect prices or rents from 1985 to 1987 more than the negative gearing losses claimed against your wages as they had only been in place for six months before they were removed.

    And then the decision to claim ip losses against your wages was reinstated again sometime in 1987.
     
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  18. Herbert

    Herbert Well-Known Member

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    Ummm...the rest of the world manages without negative gearing.

    In simple, it is a tax rort (by many) which benefits those with large tax bills (the rich) and consequently disadvantages those without large tax bills.

    No other country applies negative gearing, or would think to, except Canada, which has a much less aggressive form of NG, but and equally big, and collapsing, property bubble.
     
  19. kierank

    kierank Well-Known Member

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    A simple Google search shows that NZ and Japan allow NG.

    I believe it is wrong to just look at NG in isolation when comparing one country against another. One needs to look at the whole picture.

    For example, in the USA, owner-occupiers can claim their home loan interest against their income (wouldn’t that be great), their home loans are non-recourse (wouldn’t that be great for the individual), ...

    In other words, compare the full apple against the full apple and not the seeds of one apple against the skin of another.
     
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  20. euro73

    euro73 Well-Known Member Business Member

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    Grandfathering will be applied to existing arrangements. So whatever benefits you are already eligible to legally claim on property you already own , you get to keep . Nothing changes for existing owners or existing INV properties, as far as that is concerned. But after date X ( lets say July 1,2020 for example) a line will be drawn in the sand. Once we cross that date/time line , you can only claim deductions (NG) on additional or further purchases if they are brand new.

    So existing properties = grandfathered. Nothing changes
    properties purchased after Date X will either have access to NG or not, depending on whether they are new or not