very interesting Q&A about housing tonight

Their party is scarily getting more and more popular, so I believe you are wrong when you say they won't emerge from the ashes.

 

If they get the policies they want, imagine the state of the housing market after five years. If this was to lead to a rise in their popularity, then it speaks to our future.

 

As always, they'd blame something else as the cause of their failed policies.

 

Agreed. I’ve just read his new book which cuts through all the spin and misinformation. He would have been poking his eyes out listening to the politicians speaking about the supply side.

 

The more I think about the issue (housing affordability), the clearer the apparent solution becomes (based on the view that increasing the overall supply of OO suitable housing is the only long term non band aid solution):

• Grandfather in existing laws for currently owned dwellings (the landlord is not the villain here).
• Focus on legislation that acts as a supply side incentive for the private sector
• Removal of the real estate incentives/handouts that do nothing for national productivity/housing supply. Remind me again what benefit there is to society in allowing negative gearing on existing dwellings? (yes I know NG it applies to other asset classes - but we're not talking about other asset classes).

It is crazy to me that people argue against that last point (besides those who stand to benefit). It is literally a cash handout to an investor trying to get a leg up, distorting the market in a way that is detrimental to an OO buyer.

Giving the investor buyer a leg up over the OO buyer is such a disgusting policy. I don't vouch for a leg up for owner occupiers. I DO vouch for not giving investors a leg up on housing investments that don't contribute to supply. Make your investment work without a cash handout, otherwise go to another asset class so we can give future generations a better opportunity to own a home without a life of debt servitude.

Allowing an investor to offset their income, with some of the the expenses incurred from the running of a business? Seems reasonable.

Allowing an investor to offset their income, with some of the the expenses incurred from the running of their portfolio of existing (not new) residential dwellings? GTFOH

There is nuance to my message though - sledgehammer change is rarely a good thing. Change has been be slow (10+ years), phased, and grandfathering rules so as to not penalize those who payed by the current rules and won.

 

I wrote this (added some extra notes) in a Winston Hills/Baulkham Hills thread overnight - someone was incredulous about the house prices there. A roughly 2.2 mill house price median is common in the Northwestern part of Sydney. (Epping and up into the Hills... eg. Epping, Carlingford, Cherrybrook, Castle Hill etc all have a similar median, low 2 mills) but the comment regarding Tokyo and its home prices is very pertinent to this debate.
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Unfortunately that's Sydney. Gotta buy a townhouse or duplex or look elsewhere if you can't afford a house.

In Epping area, a median house was about 700k in 2008. Now it's 2.3 million. (Just off this.... 16 years and its gone up 1.6mill!! That's 100k per year on average).... Stamp duty has increased due to the sale price from around 25k to around 100k.

I just listened to a podcast (ABC "If you're listening"), homes in Tokyo are not expensive. Reason being, it used to be like Sydney (and other major western cities), getting more and more unaffordable for the average person. The Government of the day took control, they gave developers free rein to make offers to house owners as the Government allowed development anywhere and everywhere in Tokyo.

Councils (who had to listen to their local communities) lost their control over development, residents couldn't protest (well, they could but it made no difference) - "Nimbys" didn't have a say any longer. So enmass, houses everywhere turned into land for apartment blocks. Home prices fell everywhere because as a result, homes were widely available. Also Japan has death taxes, so any estate you have gets taxed at 50%, making passing on wealth through property to your heirs not really so much of a thing.

Japan has a very low birth rate and also doesn't have migrants coming in (not like a lot of other countries anyway). Home prices can only go down in Japan imo.
At least it's good for anybody young. Being able to afford a home to live in...

Ok people can afford to buy apartments in Sydney, but apartment dwellers see all the people who bought houses (mainly people older than them) and getting so wealthy as a result....
Relying on wealthy parents.... it's not such a good thing for society imo.

The other interesting thing on the podcast (currently in ABC listen app if your interested), was that it was mentioned people in Japan don't really move into someone else's 30 year old home. They always build new. I suppose someone can tell me if that's the case or not. I can't see that being true of apartments surely?

 

I agree rents are too low. Getting rid of negative gearing would stop the handouts that renters are getting in the form of subsidised rent. The yield for rental properties should be considerably higher like it is in many countries. Higher rents would also disincentivise renters from relying on other people for their accomodation and help them become more self reliant.

 

Yes rental yield will look very different in a world where everything I said becomes reality. Probably for the better for reasons you mention (self reliance and all that). It'll be a completely new market equilibrium.

Can you explain what you mean with the NG translating to a subsidy for renters? What are the market forces that drive that?

 

Spot on, investors need to shift the mindset that this is an investor subsidy.

 

If the cost goes up for any seller they generally always pass it on to the end buyer rather than absorb it. Given vacancy rates are around 1% I can easily see a situation where yields grow considerably to match the removal of negative gearing.

 

You say NG is a cash hand-out. That is a misstruth that always bugs me. It is not a hand-out but money not collected. A small difference but a fib designed to benefit ur argument that the opponents of NG typically use.

 

In my experience renting out our IPs. Every time we get an inspection report, all the tenants I’ve had didn’t really make an effort to make the space their home.

This is a generalisation of course, but it shows there is a percentage of people who’s just happy to rent and don’t really want the responsibility to take care, maintain and “own” the house.

Policy is at risk of swing too much to renter “entitlement”. I wouldn’t want to be leverage on a large IP portfolio now. Taking all the financial risk for someone else to use and feeling like they are entitled to it

 

It's a handout because your MTR is effectively reduced. It's not a level playing field. You get MORE benefit if your income is higher (from those negative gearing claims). Obviously a loss is needed to get that 'benefit'. But that's the whole bloody point, the incentives encourage more loss making investing. Which makes makes it a ******** market to buy in for any OO because they're up against that BS.

Take that NG away for existing dwellings and the market dynamic shifts, for the better. It's not a panacea. But it's a step in the right direction.

If you have a problem with the marginal tax rates themselves, well then that's a whole other issue.

 

Investors (as an idividual, company, trust, etc) can make investments in a wide range of assets, claim expenses (operating costs, interest, capital depreciation) and receive a 50% discount on capital gains. This includes small business, large business, equities, crypto, VC, PE, commercial property.
.... So why should residential property be different?!

 

There is a logical case for negative gearing being removed for existing dwellings….. and property prices dont fall and rents accelerate even faster.

 

Because there can be a direct political link made between you the landlord and any misfortune of the tenant (be the misfortune their own creation or not).

Look at history of communism in Russia and China. Gentry landowners and capita owners got the blame for everything that was wrong.

 

I would've thought access to and stability of 'the home' would be a higher priority for Australians.

I don't currently see a productive benefit to society in allowing NG for existing dwellings (reasons for in my previous post). My gripe is purely with existing residential dwellings.

 

Yep. That's why the devil is in the implementation detail. Edit: Any such policy needs to align with trade and construction capacity. So it's a multi decade timescale for such a policy to settle into a new equilibrium.

 

If it's coming down to supply or affordability then BTR providers are starting to do their bit Single mother Karen embraces new 'micro' living in Sydney's inner west, saving $300 a week on rent

However my criticism of this is the product is bare bones and I would still consider expensive when compared to the slightly smaller new age boarding house model which are built to a higher standard of finish, around the same price point but don't have the same security of tenure.