Negative gearing is on the chopping block

ScreenHunter_1907 Apr. 02 15.16

By Leith van Onselen

Reports have emerged that the Government is seriously considering reforming Australia’s negative gearing rules, by grandfathering arrangements for existing investors and potentially only allowing negative gearing on newly constructed dwellings. From SBS News:

Government sources say one of the changes being considered by Treasury is the grandfathering of arrangements for existing investors, but limiting future access to negative gearing so only new properties will be eligible.

It is understood Treasury and the Parliamentary Budget Office have done work in this policy area in recent months…

The scheme was originally put in place to boost Australia’s housing stock, but it has had the effect of driving up property prices and rent.

In 1985, when the Hawke government made changes to the scheme, the then-treasurer Paul Keating described negative gearing as a way for high-income earners to “swap flats on Bondi Beach which were built 40 years ago”.

And it remains true. In 2013, only about eight per cent of the money funding the scheme went towards new dwellings, with the remainder for established homes and apartments.

Limiting negative gearing to new homes and apartments would refocus the policy to add to Australia’s housing stock rather than drive up the price of existing housing…

“Quarantining is where the loss on an investment can’t be used in the year it is made, but can be used in future years against profits from the same investment from which the loss arose,” explains University of NSW tax expert Dale Boccabella…

The Housing Industry Association says any reduction in negative gearing benefits would have a “marked negative impact on the demand for housing”.

It would also worsen rental affordability through a reduced supply of investment housing.

Obviously, reforms of this nature would be a wonderful development, not just for housing affordability, but also the Budget.

According to the Grattan Institute, quarantining negative gearing losses would save the Budget around $4 billion per year initially, falling to a saving of around $2 billion per year over the longer-term.

It would also remove some speculative demand from the housing market, taking the pressure off prices, improving housing affordability, and increasing the rate of home ownership.

The HIA’s claim that the removal of negative gearing would reduce the supply of rental affordability is also complete bunkum.

Reserve Bank of Australia (RBA) data clearly shows that the overwhelming majority of investors – almost 95% – buy pre-existing dwellings, not newly built dwellings, and that the proportion of investors buying new dwellings has fallen spectacularly since negative gearing was re-introduced in September 1987 (see next chart).

ScreenHunter_1946 Apr. 04 09.34

Moreover, the amount of investor funds going into new housing has barely shifted in 25 years, whereas investment in pre-existing dwellings has skyrocketed:

ScreenHunter_1947 Apr. 04 09.34

And since investors primarily purchase pre-existing dwellings, negative gearing in its current form simply substitutes homes for sale into homes for let. As such, negative gearing has done little to boost the overall supply of housing or improve rental supply or rental affordability.

In the event that negative gearing was once again quarantined and a proportion of investment properties were sold, who does the HIA think they would sell to? That’s right, renters. In turn, those renters would be turned into owner-occupiers, reducing the demand for rental properties and leaving the rental supply-demand balance unchanged.

Nor would rents rise due to the policy change. The below chart plots the Australian Bureau of Statistics (ABS) rental series from 1972, with the period where negative gearing losses were last quarantined (i.e between June 1985 and September 1987) shown in red. As you can see, there was nothing spectacular about this period, with much higher rental growth recorded in earlier periods when negative gearing was in place: ScreenHunter_32 Oct. 22 07.40

Similarly, if we deflate the above series by CPI, in order to remove the effects of inflation, we again see that rental growth over the period when negative gearing was last quarantined was nothing special, with periods of higher rental growth recorded both prior to and subsequently:

ScreenHunter_33 Oct. 22 07.42

In short, negative gearing is costing the government billions in lost tax revenue, but is doing absolutely nothing to boost supply. It also creates additional demand from tax subsidised investors, placing upward pressure on home prices and locking-out would-be first time buyers.

There is little policy rationale in favour of keeping negative gearing in its current form, whose foregone funds could instead be used to fund schools, hospitals, housing-related infrastructure, or any number of other worthwhile endeavours.

The Government would do well to ignore the screams from vested interests, like the HIA, which seems only concerned about protecting the value of its member’s land banks, rather than actually boosting supply.

[email protected]

www.twitter.com/Leithvo

Comments

      • Why the hell are they considering making it apply only to new buildings when there is a FAR simpler way: double the depreciation schedule.
        Then the entire thing can be scrapped since only new structures depreciate. Old structures have already depreciated.

    • Indubitably, my old chap! This news has indeed given us a stiff woodie the strenght of 10 oxen! 😛

      Now, what can one do with it at work? and in a meeting too!

    • Why, what are you trying to catch with baited breath?

      You would be better to wait ‘with bated breath.’

      • Sure about that davo? Option C: you’re both wrong.

        If you’re (a)bating your breath, you’re holding it. If you’re waiting for NG to be abolished while you hold your breath, especially if you have agricultural-grade turgidity like Ino, you’ll soon be bumping into Michael Hutchence in the afterlife.

        The news does look promising though. I wonder if the ‘government sources’ cited in the SBS report are members of the IPA/Hockey club crew reputed to be white-anting Abbott.

    • This would be a great move.

      BUT

      Without addressing supply side constraints associated with planning laws and land release policies the potential for such a move to increase housing supply is still limited.

      • @Gramus

        Cause and effect would come into play I would think. Take existing properties out of the equation for NG and the supply side constraints suddenly become less constrained and more land is opened up for development and investment.

    • Strange Economics

      Doesn’t the HIA mean ” a marked reduction in level of commissions for Real Estate agents” in trading overpriced old apartments to tax avoiding high income investors, as newly constructed apartments are sold instead directly by developers.
      Not a good idea, might have to downsize to a BMW 1 series convertible from the 6 Series.

      • Which is why it is puzzling stance from the HIA. They don’t represent RE agents. They are supposed to represent builders and building material companies..

    • I think that in time to come, if this regulation is implemented there is going to be “tears at bedtime” why because then all of the investors will be jumping in on new housing and hence forcing first home buyers out as the investors will be the same people taking up all the new land, this will then drive up land prices and into the housing market. I dont have any fair answers to this problem of NG. but time will tell if I am right.

    • What about the prophecy: “Thoust Negative gearing will not abolish until the last of the Chosen Ones (Baby Boomers) have retired”

      • swizzy your envy of the top 5% of boomers is a worry.

        I sincerely hope you can get over this and get on with your life.

        It’s just not natural swizzy… Your parents are probably decent people and love you very much.

        swizzy, negative gearing completely depends on capital gains, otherwise it’s a waste of time.

        To be honest, unless you’re paying more than 50% tax in that part of your income you are claiming against, and unless you wait for a property crash before you actually buy… You are not going to make a profit.

        Please consider.

  1. What I can’t wait for is the Labor response if (and it’s still a big IF) it’s mentioned in the budget I’m taking bets on “Brought in by Howard” without a dicky bird as to why they sat through several tenures of government and did sweet FA about it.

    • Labor will probably spin it as an attacking on the working class trying to get ahead. Tanya Plibersek will be right at the helm championing the cause the entire way.

      • Probably, but if the Coalition does put this forward I hope Labor can rise above opportunistic politics and support it. It’s unlikely, but then the Coalition in Opposition wasn’t above putting political opportunism ahead of the national interest either. At any rate, I don’t see the Abbott Coalition having the fortitude for this reform. I’ll be happy to be proven wrong though!

      • @Powermonger

        “Labor will probably spin it as an attacking on the working class trying to get ahead. Tanya Plibersek will be right at the helm championing the cause the entire way.”
        ————————————-

        This is the Tanya Plibersek that happily agreed First Homeowner Grants simply distorted the markets in favour of sellers, and then just as happily doubled it a week later.

        I’m not holding my breath. They are all Politicians, on both sides, and as such worthy of little more than contempt.

      • Tanya doesn’t have the factional power to be able to make any policy decisions without the backing of caucus. She strikes me as too honest to be able to play with the big boys in the Labor party.

      • Honest and Tanya Plibersek should never be used in the same sentence, unless there is a disqualifier.

        She’s John Howard with smaller testicles.

    • I’m betting it won’t be mentioned in the budget. And if it is, it will be strongly opposed by Labor.

      • Labor will definitely oppose.

        There’s two-thirds of the population who will see this as an immediate negative to the value of the property that they own (alone or in partnership with a bank) and/or a threat to their tax-lurk.

        That alone is simply too tempting for any opposition to pass up, putting aside the fact that most of our Lib/Lab ruling class themselves are directly conflicted on this point.

        The broader economy and the nation’s future be damned. Proactive measures will never be taken to end this nonsense.

        Brace for impact

    • The Patrician

      They need to get the support of the construction unions asap.

      Can someone explain the benefits to them? Fast

      Is Paul Howes available?

      • Careful Patrician
        If you’re in a room with the CFMEU and they get a phone call telling them a new bikie clubhouse out there somewhere is going to be negatively geared, you’re in for it..

      • Sorry TP
        I meant “Not a bikie clubhouse – honest” which is what I believe they’ll be calling the new ones.

      • If an election was run on the abolition of negative gearing, any party opposing its abolition would lose the election easily, even more so if current negatively geared properties were grandfathered.

    • Found this old Lateline transcript, sums up both parties attitude 11 years ago

      http://www.abc.net.au/lateline/content/2003/s991145.htm

      I love the last part of the story:

      EMMA GRIFFITHS: More than four months into the job, Mark Latham's still fielding the odd question about the issue and not opening any doors in that direction -- not even a crack.

      MARK LATHAM: Reality came and ruled it out, so that's the end of that.

      TONY JONES: The real question is is negative gearing fuelling the housing boom?

      MARK LATHAM: Well, it's not fuelling any Labor Party policy review, that's the important thing.

      EMMA GRIFFITHS: -- which leaves both major parties in favour of the tax break and neither entering into any discussion about its effect on the housing market.

      • The important thing to remember is you don’t matter to Laberal party policy making!

      • I had suspicions he might have been against it given his bravado, I didn’t follow politics too closely at the time, good to know he was just another opportunistic idiot.

      • Like Keating, Latham can be a prick sometimes. But both of them are good political leaders who don’t mind offending the self-entitled “battler” set among the voters.

      • That’s why I liked him Mav. But at least I can be pretty sure he wasn’t pro housing affordability.

      • Latham was pro-affordable housing.

        He is an economist first and foremost with a redistributive focus.

        He grew up in Green Valley and his purpose was to correct “how unfair things are”.

        He doesn’t regard claiming the cost of capital as a bad thing, and views productive debt as a mechanism for social mobility, much like Keating, which is why he would keep negative gearing.

        He rates property developers as the very worst of bottom feeders.

        Latham also had a loathing for greens and feminists. He would have likely addressed supply. That said, he wasn’t leadership material. A powerful policy advocate, and had a period of popularity due to stands of integrity, but he was never one who could build gentle consensus like Hawke, or overwhelm the intellectual narrative to make the sole choice obvious like Keating.

      • “The important thing to remember is you don’t matter to Laberal party policy making!”

        haha that is it!

  2. moderate mouse

    I must be dreaming….better fix another coffee and come back to the screen and re-read.

  3. “The Housing Industry Association says any reduction in negative gearing benefits would have a “marked negative impact on the demand for housing”.

    Which would be a great thing for our country.

    “It would also worsen rental affordability through a reduced supply of investment housing.”

    And where are those houses going to disappear to? Oh, they’re not – they’ll be bought by current renters freeing up their rentals for others.

    • The Patrician

      The HIA should be publically flogged for their indefensible position on this by their members, the Masterbuilders, the construction unions, Bob Day… etc

      Where is Bob Day?

      • Er Leith, have you read Bob Day’s views on immigration and population?

        There is a strong case for substantially increasing our population. In the first instance, we should focus on what can be done to raise our birth rate. Australia’s birth rate is now below its natural replacement rate, and the consequences of an aging population are now starting to become apparent.

        Raising our immigration level would complement this. The focus of any increase in migrant numbers, however, should be on those migrants with a high likelihood of finding employment soon after their arrival in Australia. Such an immigration programme would allow us the benefit of being able to increase and better absorb our annual intake of refugees at no net cost to the taxpayer.

        http://www.nationbuild.com/nb-immigration.php

        Family First. Enough said.

      • Hadn’t seen that, Lorax. Day’s housing supply stuff is brilliant, but his presumed support of the population ponzi is very disappointing.

        Don’t worry, I will whack him if/when he makes such statements publicly again.

      • Lor-Kouk
        Well he is quite correct and also wrong. We have actually been below replacement fertility for over 40 years now and our actual deaths double over the next few decades as the boomers leave the home planet. Will immigration be doubled or more to compensate for the falling natural growth? Not likely as the largest voting bloc will be the aged who want the door closed behind them.

        On the issue of NG, approx 700,000 boomers have a NG’ed property. Simple question, how many will want that as they retire and can no longer utilize the tax benefits?

      • “Simple question, how many will want that as they retire and can no longer utilize the tax benefits?”

        Yes, particularly when they’ll want the tax revenue to support their health and other benefits as they age.

      • moderate mouse

        @ Lorax

        Re Bob Day….what a surprise – a supply-side lobbyist who is pro-population ponzi. These guys don’t care a bit about affordability – they are all about building as much as possible and selling as high as possible. Don’t believe the HYPE.

  4. If they do it, it will make the grandfathering worthless anyway, as demand will drop, prices will drop and what are the speculators going to do? negative gear a falling asset? *POP*

    so I doubt it will happen.

    • Specufestors believe they can raise rents to cover whatever NG no longer covers. After all, rents have plenty of room for significant increases…

  5. Should I quickly pour all my savings into a couple negatively geared regional IPs to take advantage of the grandfathering arrangements??

    Will I miss out?

      • Yeah I agree BurbWatcher, too many people on this site have very little faith in their own parents.

        Boomers want the best for their children and their grandchildren…they will back the abolition of negative gearing.

        When will X and Y generations realise that the real enemy is the bankers and their banks.

  6. How would grandfathering work? Would it be slowly tapered away after 5 years? Or would people get to keep it indefinitely ,particularly in the case of interest only loans?

    I’d love an instant removal of NG. Yeah crash, unemployment blah blah. But I’d much rather bring that forward when it’s not happening in sync with a Chinese crash.

      • I suspect they (HIA or REIA) posted the plan just so Joe can come out and deny it is part of their policy platform (which is true) so killing any possibility and a win for HIA and REIA as a result.

        A risky double bluff.

  7. The Householder

    I agree that there are strong policy arguments against negative gearing. There are many tax rorts that have appeared untouchable that make no sense from a policy perspective.

    I wonder how many tax rorts that mostly benefit working-age people will be phased out as baby boomers enter retirement en masse? I wonder if rorts that mostly benefit retirees will be attacked with the same vigour?

    • This is very obviously what is going to happen. You will see a huge shift away from rorts favouring income earners commencing around 10 years from now.

  8. InconvenientTruth

    I work in finance and it is scary how many people *want* negative gearing because they think it is some sort of household homeowner’s grant. I just had this conversation with a colleague.

    “Hey, they might actually address negative gearing”

    “No. That’s bad, I want negative gearing!”

    “Why? You don’t own a house”

    “But I want that benefit”

    “Well if they isolate it to new builds or scrap it entirely it should increase supply, reduce investor speculation on existing homes and ultimately lead to increased affordability”

    “But I might want an existing house”

    “Which is fine, because it will result in lower prices due to an increase in supply and/or investors bidding up the price of your existing dwelling”

    “But I want to offset it against my tax”

    “I give up”

    • Yes, it is strangely true that many people seem prepared to forgo a higher after-tax profit if they feel that they have somehow deprived the ATO of some money.

      The psychology of that alone is why -ve gearing should be scrapped.

      • *sigh*

        If I had a negatively geared dollar for every time I’ve had that conversation with my fellow bogans…

    • @IC

      Yeap been there, done that, many times over. With accountants, lawyers, doctors etc…. seemingly intelligent people….

      • @ff yes same… “look how much tax we’ve saved” and “look how much the properties are now worth” etc

        They may not have been “right” but my goodness they’ve been rewarded for it financially.

      • @Andy!

        The key take is “they have”. If it wasn’t for the recent push in Sydney and Melb, many may have started rethinking their positions.

      • With accountants, lawyers, doctors etc…. seemingly intelligent people

        Ha! Try to tell them what money is…

    • That’s true – NG has been “sold” to the masses as some elixir of good fortune, but the reality is that it doesn’t make that much difference to a professional investor. A dollar of tax deduction is still a dollar of tax deduction.

      The net effect won’t be that great.

      • @PF

        but the reality is that it doesn’t make that much difference to a professional investor.

        Hmm don’t know about that….I think it makes the biggest possible difference because yield investments are taken out. Everyone starts chasing CG and that has become the game….

      • “Hmm don’t know about that….”

        Even if true, the majority of Australian residential property investors could hardly be considered professional.

      • @pf Good point. A true professional investor is very different to a specufestor – the latter signing up for a certain cash loss every single month! This is why it’s so frustrating to read loan categorisations to “investors” because many are clearly not.

  9. Just talk.

    I’ll believe it when I see it.

    TPTB aren’t going to pour such scorn on macroprudential, talk about pumping property prices further, and then say yes to removing negative gearing…

    Forgive my cynicism, but only a severe recession, with significant job losses, will pry the minds of Australians from their obsession with property and its prices.

  10. If they do it it will be so carefully constructed so it doesn’t hurt a hair on the head of this country’s precious house prices. Dream on. The only way we’ll get affordable housing is via a crash and a global depression.

  11. While Abbott will lose 1.1 million votes from the NGed bludgers if he quarantines NG, this is a Gen X/Y/Z vote winner. Clearly, the Lib pollsters have crunched the numbers on this and are testing the waters.

    • Yes good point, definitely a vote winner for a significant number of voters (and their concerned parents/grandparents).

    • Hi Mav,

      As a serious query, do you think that GenX/Y/Z are a voting block on fiscal issues?

      I’d make the claim that young people (and I am 21 myself) are the most likely demographic to be split in little factions all along the political spectrum.

      • Jim
        An interesting question.
        I think Gen Y and likely Gen Z, will not vote as a bloc. They are likely to vote with their feet and emigrate to a more affordable country. That trend has already started.

    • dumb_non_economist

      Sorry Mav, but I don’t agree. Maybe the case with those like you and others here, but from my experience most have picked up their thinking on NG and housing from their parents.

      It’s a bs mindset that will take a housing crash to correct. Nearly everyone thinks their going to join the NG mob and make a motza, thus a some stage see themselves jumping on the gravy train.

      • Yeah, but the only way now for young people to get on the NG gravy train is to live with their parents well into their 30’s, get “help” from parents for a deposit and compete with grey beard bludgers at auctions to buy that shitty IP they can’t live in.

        Now how appealing is that to a young person looking to settle down into an independent adult life?

    • [email protected]

      Hopefully, the government will have the guts to tackle NG. About time the government look after young Aussies first home buyers who have been priced out of the market by domestic and overseas speculators and the NG benefits.
      .

    • The youngun’s are leaving if they’ve got any sense. That leaves 1.1 million NGers versus the 60-70 people who come here.

      I think I know which way the major parties will go…

    • Exactly. This could be a huge vote winner.

      Frame the issue as:

      Landlords vs Homeowners/Tenants

      How hard can that be

  12. The chance of this going through is about 0.000000000000000000000000000000000001%

    Don’t forget how many pollies have NG IPs.

    • Problem is that with all this talk of the budget black hole continuing to increase, I think that the dissenting voices will be forever increasing against NG if they try to implement additional taxes before cracking down on tax break loopholes.

  13. Wont this cause people to hold onto their NG’ed properties for ever, or is there a time cap on capital gains?

      • A lot of newly minted pensioners trying to offload their IP’s here, but they’re hanging on to those high priced ideals hoping to rope a blow in, & won’t meet the market. Now they’ve taken to whispering to each other that it’ll come right in ’16 because the local RE ‘expert’ says so!

        Just gotta hang out till then…….

    • There is an even better housing concession available when you retire. Put an IP in your self managed super fund and both the rental stream and any capital gain are tax free once you enter the drawdown phase.

      • Well I just learned something!

        I don’t think this mob know that by the way they talk. I doubt many of these would have SMSF’s either………

        Now I’ve got to decide whether I should let them know………….

  14. “In the event that negative gearing was once again quarantined and a proportion of investment properties were sold, who does the HIA think they would sell to? That’s right, renters. In turn, those renters would be turned into owner-occupiers, reducing the demand for rental properties and leaving the rental supply-demand balance unchanged.”

    C’mon UE, and then what? Australian population is growing. Just think where really is the demand for rental properties… Where those Gen X, Y and eventually Z want to live? Exactly, in the city centres. And where do investors provide rental stock? And new supply of that stock is limited by… available land, etc. etc. Adding more rental stock on the city outskirts is not the answer. You are barking up the wrong tree…

    And then …” In short, negative gearing is costing the government billions in lost tax revenue, but is doing absolutely nothing to boost supply.”

    Wrong again, re supply (see above). NG allows investors to compete on equal grounds with upgraders and FHB, not put them above everybody else. It does provide also some level of “financial comfort” for investors but financial benefit is really negligent. And by the way, billions are not lost, just delayed (basic tax accounting knowledge is all you need to understand it).

    I am not defending NG and do not proclaim it should be retained but what you put forward is certainly not a valid reason to abolish it…

    • How is buying a house which was built 100 years ago “providing rental stock”? thats complete fiction.

      • FactOrFiction

        Just think about it for a moment… it is. City centres are where people want to rent and there is a growing demand for properties in such locations (because of growing population etc). The volume of all available properties in such locations is not changing (or not changing by much over time). Swapping use of the property from “private accommodation” to “long term accommodation service ” increases rental stock (not the overall stock). Plain and simple everyday occurrence. Not fiction.

      • The Patrician

        So the 8000+ new dwellings approved in the Melb CBD in the last 8 months will not change the “volume of all available properties in that location”? Still fiction

      • FactOrFiction

        And your point is? :-)

        Did you miss this: ”… not changing by much over time”. Not all of that volume will end up as rentals. On average, it will take 2-3 years for those properties to be liveable. Meantime, Melbourne population will grow by another 150,000 – 200,000. So the trend of swapping private properties for rentals will continue. Even more so in Sydney…

      • The Patrician

        So your proposition is that investing in new dwellings does not increase the housing stock but investors buying existing dwellings does?
        Pray, what is this babble?

  15. At the margin quaranting NG losses must have some impact on the supply of rental properties (eg someone who would have negatively geared a new property will invest in shares instead). Presumably that’s why the proposal in the report leaves NG in place for new dwellings.

  16. dumb_non_economist

    Will it be possible to side step this by putting IPs in some type of “holding” vehicle so that the owner doesn’t actually change hands, similar to the way SD was avoided yrs ago on commercial property until the law was changed (in WA anyway), ie only the owner of the holding vehicle changes.

    Could smart lawyers enable that with a loan attached?

  17. A time limit for each property for carrying forward losses and for negative gearing would also work. eg tax positive within 3 years and all losses lost after 5 years.

  18. I take it the $4Bn saved will then go to recapitalise the banks once property prices fall.

  19. I distinctly recall Sir Tony of Abbot being asked about NG at a press conference.

    His reply was something along the lines of

    “The liberal party is not in the business of reducing the wealth assets of people who had invested”

    So no, there will not be a removal of NG.

    • Joe said much the same on Qanda too. Looked quite smug about it.

      May be natural though.

    • At least he does not pretend NG is there to “increase” supply of rentals.

      Ponzi paper “wealth” at taxpayer expense.

  20. [email protected]

    Hopefully, the government will have the guts to tackle NG. About time the government look after young Aussies first home buyers who have been priced out of the market by domestic and overseas speculators and the NG benefits.
    .

  21. I so hope this is true.
    Demand for new NG properties will increase.
    All the lower density accommodation closer to transport and amenities will be in high demand as sites for redevelopment. No point in building new, further away from everything. Sites are more valuable for redevelopment than just for rental.
    WoooHooo I will make out like a bandit. 😛

      • Bugger the chickens …. who do I have to vote for to make this happen ??????? A significant group of BB’s will vote for this. It will give us a chance to unload.
        It is the younger generation of investors that will possibly get burnt because they have purchased into high density more modern investments. Oh well …. buyer beware.

      • Think about it:

        No NG on current property means on yield the price needs to come down. If current properties becomes cheaper, NG or not, that puts price pressure on new builds.

        And if the yield equation comes into the investors favour, then why chase NG?

      • I have thought about it. I am one of these nasty BB property investors. My particular group have no chance of benefiting from NG … hell, all my properties have been positively geared (actually owned outright) for the last 15 years or more. All the early BB property investors purchased their investments way back when it was easy to buy a flat almost next door to the train station, shopping centre, schools,hospital, etc. Most of this was low density flats, and still is low density flats. These locations are now relatively scarce. Anything to make this land more valuable if just fine by me. I don’t care what happens to the value of the flats themselves. The flats themselves are just old crap that would benefit with a good pull-down.
        Gime gime gime !!!!!!

        Never get between a Baby Boomer and their money, you will just get run over in the rush.

      • Anything to make this land more valuable if just fine by me. I don’t care what happens to the value of the flats themselves.

        Errr this is exactly the opposite of what I am saying. Why will land become more expensive? If land prices drop across the board, what advantage do you have? The NG will only compensate for the building…..

      • My particular group have no chance of benefiting from NG … hell, all my properties have been positively geared (actually owned outright) for the last 15 years or more.

        And your complaining about what? Do you even understand what NG is?

      • Yes Flyingfox, I do understand what NG is.
        Let me expand a little about my reasoning.
        1) With NG allowed on all properties, the investor will have all old as well as new properties to invest in. Old properties close to infrastructure as well as new properties out on the fringe. there is a wide spread of property types that will get purchased by the NG investor.
        2) With NG allowed for only new properties, the major choice area is only the outer fringe where land is not fully developed for high density. That area is not a good location for renting high density property for many reasons, not including the requirement to have a motor vehicle and parking for guests. This will stimulate the drive to redevelop inner property so that this inner area will be able to claim NG and be the desirable area for investors. The overall drive will be to increase the demand for total property purchase for redevelopment within the inner area, It is a rather limited area. It does not matter what happens to flats in the other areas, it is the increase in demand for land purchase in the inner areas that will drive up the prices of that land. As a typical example, a flat in an area may be worth a certain value. If the land gets redeveloped, then the developer usually pays about 30% to 50% above market value for that same flat (at least that has been my experience from 2 flats that I have sold during redevelopment).
        Anything that encourages redevelopment is good for the older BB investor.

        It is a dog eat dog world out there.

      • @sydbod

        That is all fine assuming that everyone wants t negatively gear fro some reason? Now there is no choice…..

        Do you even feasibly consider that prices can fall is Ng is removed? Because investment will become just that and not specufesting as it is now?

        Edit: Think about it. Two properties side by side. One new build and one existing. The existing build one can’t get NG. It must be priced to have a certain yield. New build has Ng and can be priced higher. But you can build on both so the land for both is the same.

        Given the choice, most good investors will pick existing build because it is actually earning them money….

    • @ Flyingfox,
      I have no doubt that prices for second hand flats in general will fall if NG is removed from this investment type. It is the locations that are important and who owns what in those locations.
      What I am counting on is the corresponding increase in (in demand) inner land prices for redevelopment to satisfy the needs for investors that “just have to negatively gear”( <-I know … some people are just stupid) and want inner location positions. Redevelopment land purchases will definitely go up. Bigger demand with same sized resource should push up prices for the land.

      • @sydbod Why do you have to negatively gear? There is no reason…at the moment you have little choice….if I were to invest I would still by the inner city locations, hopefully get a good return. No need to develop just to get NG. Like I said the NG will got into the building component not the land.

        We can have this convo in 18 mnths time if they get rid of NG.

  22. @flyingfox, I have never negatively geared anything in my life and never will. But society sees it differently. TV says NG is good. TV says location, location, location. One just has to look what is on TV and talk to people in general that have NG in the near past to realise that most people have no idea of the true economics behind it.

    With NG removed from established flats the investor that wants to use NG and location, location, location, now does not have the choice for the location, location, location part. This is where the redevelopment pressure will come from. The increase in requirement for redevelopment in the location, location, location area, increases the demand for the fixed amount of land with (old flats on them). Same resource, greater demand, leads to price appreciation.

    It is a crime to let a fool keep their money as they will just waste it by other means.

    • @sydbod

      OMFG Dude, you’re just going to sing your own tune. So be it.

      In leaving….

      TV says NG is good. TV says location, location, location.

      Yeah. No choice now…..everything can be NG’d and therefore is. It is herd mentality.

      When you get a choice and people start thinking, oh wait, I can can actually make money…..hmmm…why do I need a new build…hmmm…..existing houses have better yield…hmmmm

      Guess what happens when the herd mentality breaks….anyways good luck to you sir…

      • Many people have waited for the herd mentality to break, but the force is great within the herd. I don’t know why but to me at least ,financial understanding by most people has been on the decrease. I sometimes wonder if most people actually do think or they just glibly follow.

        It was a pleasure chatting with you. Good fortune to you also.

  23. Excellent news. Seems the Abbott government does have some common sense. But now “investors” will yell & scream.
    But now the developers of new homes will benefit. And now that bubble will grow larger. It’s simply better to scrap NG all together for new ALL investment properties.

  24. Now this report has made it into the Domain headlines… after some cynical meditation I think I’ve figured out the angle.
    “Clearly, FHBs have fled the market and the FOMO is fading… so lets TALK about grandfathering out negative gearing.
    That should the FOMO juices flowing again.
    We need Gen Y gearers!”

    Call me crazy.

    Remember when Steve Keen spoke of the collapse of the bubble he inadvertently sparked off a redoubling of the FHOGs – in effect, prolonging the ‘boom’…
    Now that Keen has wised up to the effects of his predictions and is now largely keeping his mouth shut, they’ve taken it upon themselves to dream up a new buying catalyst.

    Lets be real, thats all this is.

  25. Aha, negative gearing again!

    I do not have exposure to properties, so I do not have much to say about properties (other than its general implications to the tax receipts).

    As for shares, though, negative gearing should stay. And here is why.

    Take Berkshire Hathaway for example. It is the best stock you can buy, if you can afford one. Because of the hefty price tag, very few people can buy one without borrowing some money. Plus, it famously never paid dividends, and for a good reason. Abolishing negative gearing would preclude most people from fractional ownership of this wonderful business!

      • Hi flyingfox.

        You know what I mean. If I were to buy a class A share, pretty much all my wealth would be concentrated to a single stock. It closed at US$185,753.00 on Friday, which equates to about AUD$202,000.00 plus brokerage. If I were to borrow any portion of the price tag, then the interest bill would not be tax-deductible if negative gearing were abolished.