What if Green Labor kills CGT exemption and Neg Gearing?

I think if the Govt attacks property investors by inhibiting neg gearing, cgt discount etc it will result in sky rocketing house and rental prices akin to a mining town boom

Bring it on!

 

Fair question. The reference was more to suburban and urban markets, but the same argument would still hold. The market would eventually find a clearing price. Its certainly conceivable that prices would drop below the price that is economic to develop for a while, meaning supply slows, driving the prices back up a bit to where its then economic to develop again. Money would be gained and lost through the process for sure. But we would still end up with a functional market, just one that doesnt cost the govt tens of bill a year to subsidise.

 

ok ill bite. How does removing neg gearing and cgt discount drive up prices?

 

Developers don’t pay cgt or negative gear so the amount of new stock may not be affected too much. But investors may be reluctant to sell if cgt is high and this may limit the number of houses on the market. Less supply means high prices as demand pushes them up, but some investors with low capital gains may want to sell if property is no longer tax effective

 

Developers dont pay, but the investors who buy the product off them do, so will factor those benefits or lack thereof in their calculations.

Agree could slow down sales of CGT removed, although thats likely why it gets grandfathered.

Also, if they were hoping to sell and see prices start to fall, they may get a bit more motivated to sell quickly. Big maybe on that one i'll admit.

But overall though i'd argue strongly that the partial disappearance of investors who can no longer gain from negative gearing or CGT discount would more than offset any reluctance by some to sell and crystalise gains. And even if they dont sell, the property remains in the housing stock to be occupied by renters.

Overall those policy changes would see much less capital invested into the housing sector, reducing prices, is my argument. And gIven so much of the valuation of properties in major cities is in the land value, declining property valuations are not likely to have any material impact on housing supply over the long term because land values would eventually adjust downwards, making new supply economic. Its not like a slight price fall means we cant cover the cost to build. THere's more than enough land value buffer that can fall and allow new developers to hit their target margins.

Not saying it would be an easy process though. And cause of that reason, i think its unlikely. Just saying, i'm not on board with the idea that house prices would rise. Rents maybe, but not purchase prices, imho.

 

I’d also just note a general comment:

If house prices rose because negative gearing and cgt discounts were removed, they would surely be unique among assets all over the world in having values that go up when govt subsidies for their purchase are removed…

I think I’m focusing on the impact on the economics of selling houses, it’s easy to miss the impact on a far larger pool of players, the buyers.

 

No neg gear and cgt discount means less incentive for investors to buy properties.

There won’t be enough houses to go round. That will force prices to go up for those who can afford to buy. It will be the same for potential renters. They’ll be competing over limited supply. Rents have to go up.

Unless the Govt wants to spend billions on building accomodation.

Nah, the Govt should leave things as they are. If it ain’t broke don’t try and fix it.

(The above is my opinion only and investors should rely on professional advice before making decisions).

 

But houses are different from other assets. People live in houses. Shelter is a necessity. And when it’s in short supply then it becomes more valuable.

 

If not enough investors are buying property that might mean prices drop with more people able to afford their own home?

 

I think prices drop if people sell. If rents are skyrocketing then why sell? Just start living off rents.

 

@datto you sure know how to get a boy excited!

 

If you can get to that level where you can live a simple life of the rental and other incomes then apart from maintenance why would anyone sell ..

 

Ok i'd still respectfully disagree.

Let me try and explain in 3 ways.

1. While rents could well go up as there is less investor-owned demand, i dont see why prices to buy would actually rise. Owner occupiers would be unaffected and could still buy whatever they could afford, so no impact there (except reduced capacity to buy for those using equity in investment properties, but lets ignore that supporting factor for my argument atm). And investors may buy less cause their economics would be worse (they would need either prices to fall or rents to rise to get the same returns on their incremental investments). So oo-buyers still have the same capacity to buy as before, and in fact have greater capacity to satisfy their demand because there is less demand at current price points from investors, and there's less investor demand. This should suggest prices fall, but there is less rental stock available so rents, not prices, rise. (referencing the point above, housing is kinda different but not that much. People dont need to "buy" a house, they just need to live in one. THis means the impact can be on rents, but prices).

2. Long term i dont actually agree that supply needs to fall as such because the supply curve over the long term for housing is fairly insensitive to prices. Short term sure, if a developer has bought their land and then the price falls so its not economic to develop it, they will probably sit and hold the land, reducing supply. But long term, the price of that land adjusts downwards to a level making it economic for a developer to start adding new supply. This is where things are a little unusual for housing. THe land component is a huge shock absorber and takes a lot of the volatility in the new supply market.

3. Do you think reducing the CGT rate would increase or decrease prices???? Then reverse it.

 

I just came from a thread where I learned how socialism is bad and free capital market is the way to go,
And here people are batting for gov handouts to pump demand side (existing stock) thus jacking up prices without supply increase?

I am confused, so what is it... free market or selective convenient socialism

 

Not sure there’s that much confusion on that point. Maybe a bit.

but fwiw I’d be strongly arguing for the free market option. It is possible to have a functioning housing market in Australia, that provides the housing needs for its people, without having to spend tens of billions subsidizing it. It would just operate a different prices points for both renting and buying, likely higher for the first and lower for the second.

 

It’s only my unqualified opinion. Bogan talk if you like. But I hope it comes true. We’ll be rich I tell ya, rich! lol

 

This doesn’t make sense when viewed through an supply V demand lens. Investors make up roughly 30% of the market at any given time. Removing incentives to invest in property removes 30% of the buyers.

This means more property for the market players.

Rents are a factor of what people can afford to pay, with skyrocketing COL and declining real wages we will see a floor on rents in the next 12 months.
Most of the recent rent increases have been the market catching up to its usual cycle from the COVID induced reductions.

 

Rents are determined by availability. People will put a roof over their head, if they have to share a house that is what they are doing, a person will reduce the rent he is paying by maybe 40% or 60% by sharing, but the LL gets a 20 or 80% increase in rent. Many tennants sublease houses and reduce their rent payments. and the LL and useless PM's dont know or dont care. Motels get too expensive very quickly! You only have to look at towns like Robinvale people can only afford $100 or $150 a week rent but houses are renting for much more because they are cramming 10 people in to one house they are easy to pick by all the shoes lined up outside and also by the caravans out the back. In Mildura I know of LL cramming 8 people into 2 rooms at $150 a pop and tenants putting 4 people in LUG.

 

In principal it makes sense, in theory it’s a bit different.

Rents are like any other market, each side needs to agree on a figure they’re both comfortable with. The buy side just won’t exist at a certain price point

 

How about the removal of government from both allowing negative gearing and doing away entirely with CGT. This is consistent with minimizing government interference in housing?