ABC on Hockey’s negative gearing lies

From ABC’s Fact Check confirming MB’s own analysis:

As property prices continue to rise across Australian capital cities, in particular Sydney, the debate around how to address housing affordability problems has intensified.

  • The claim: Treasurer Joe Hockey says abolishing negative gearing could push up rents, because that’s what happened in the 1980s.
  • The verdict: During the period negative gearing was abolished rents notably increased only in Sydney and Perth. Other factors, including high interest rates and the share market boom, were also contributors to rent increases at the time. Mr Hockey’s claim doesn’t stack up.

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  • A panel of experts has agreed to advise ABC Fact Check on its work on economic issues.
  • For this fact check, the following members were consulted: Chris Caton and Chris Richardson.
  • Meet the full panel.

Sydney house prices have jumped more than 6 per cent since the beginning of the year, increasing pressure on first home buyers.

The Reserve Bank has raised concerns that “ongoing strong speculative demand” from property investors will exacerbate the run-up in housing prices and raise the risk of big price falls.

Negative gearing, a tax deduction for rental property investors, is an area of contention.

But Treasurer Joe Hockey says if negative gearing is abolished, there could be other serious consequences.

“If you abolish negative gearing on investment properties, there’s a strong argument that rents would increase,” Mr Hockey said on the ABC’sQ&A.

Mr Hockey said that in the 1980s, when negative gearing was briefly removed, there was a backlash from investors who increased rents to “replace the lost income” negative gearing had provided.

“The net result was you saw a surge in rents,” he said.

Mr Hockey has made similar claims a number of times in the past two months. On April 28 he said: “If you were to remove negative gearing you would see an increase in rents and I think that hurts lower income Australians who may be renting those homes.”

ABC Fact Check investigates whether abolishing negative gearing in 1985 caused rents to surge.

What is negative gearing?

To “gear” an asset – such as a rental property – is to borrow to buy it.

An asset is “negatively” geared if it loses money.

A rental property is negatively geared if the rent charged does not cover the expenses of the landlord, including interest payments on the loan and other costs such as repairs, land taxes and rates.

The 2009 review of Australia’s tax system led by former Treasury head Ken Henry explained that the term is usually used when the landlord claims a tax deduction for this loss.

“Negative gearing commonly refers to the ability to deduct such a loss against another source of income, such as wages,” the Henry report said.

The Reserve Bank of Australia said in a 2003 paper on housing affordability that this opportunity for minimising tax on other income made “negatively geared investments particularly attractive to individuals facing high marginal tax rates”.

The Australian tax system placed no restrictions on the ability of taxpayers to negatively gear investment properties, the paper said. “There are no limitations on the income of the taxpayer, the size of losses, or the period over which losses can be deducted.”

The benefits for investors

In a March 2015 paper, the Australian Council of Social Service said the incentive for investors to run a rental property at a loss is partly due to this ability to reduce income tax from other sources, and partly due to the rule that when a property is sold, the capital gain is taxed at only half an individual taxpayer’s marginal rate.

ACOSS said that “in most cases, the investors aren’t actually making a loss because the value of the property increases each year”.

These capital gains “are not included in the calculation of tax until the property is sold, yet without them property investments would not be viable,” the paper said.

“It is the combination of taxation of capital gains at half the normal tax rate when the property is sold, and the ability to claim unlimited deductions for losses in the meantime that drives investors to negatively gear.”

Solicitor Jim O’Donnell, in a paper published in the eJournal of Tax Research in 2005, said when the attraction of “deferred and reduced” capital gains tax is added to the ability to offset rental loss against other income, “the net effect of negative gearing is that the investor can come out ahead in economic terms and still reduce their tax liability”.

The broader effects

In 2012-13 approximately 1.26 million people claimed tax-deductible losses on investment properties, according to Australian Taxation Office statistics. These investors claimed over $12 billion in losses through negative gearing in that financial year.

ACOSS said the availability of these tax breaks for investors who can afford to buy rental properties “threatens public revenue and faith in the fairness of our tax system”.

The Henry review said: “The tax advantages from borrowing to invest in a rental property, also relevant for shares, leads to investors taking on too much debt and distorts the rental property market.”

1985: Negative gearing temporarily abolished

In July 1985, the Hawke Labor Government effectively abolished negative gearing for all future rental property investors.

The reform “quarantined any losses made from owning rental properties,” Mr O’Donnell said in his 2005 paper. This meant that rental property losses “could not be used to reduce tax on other sources of assessable income”.

“However, losses could be carried forward to offset against future rental profits and reduce taxable gains made from other rental properties.”

The Hawke Government reinstated full negative gearing in 1987.

Did rents increase from 1985 to 1987?

To get a clear picture of how rents changed between 1985 and 1987, inflation must first be taken be removed.

Inflation is a measure of the increase in the general level of prices in the economy.

If inflation is included in the rental price analysis it is not apparent what change in prices is merely due to inflation.

Subtracting inflation from rental prices changes is termed the “real” rental price.

Over the period when negative gearing was abolished only Sydney and Perth experienced strong growth in real rental prices.

Real rents in Adelaide and Brisbane fell considerably over the period, whilst Melbourne experienced low, or at times no, real growth in rents.

Localised impact

Economist Saul Eslake, in a personal submission to a 2013 parliamentary inquiry, said that localised rent increases in Sydney and Perth did not support the argument that negative gearing was the cause.

If the abolition of negative gearing had led to a “landlords’ strike”, “then rents should have risen everywhere (since negative gearing had been available everywhere),” Mr Eslake said.

In an August 1987 cabinet submission for the debate on restoring negative gearing, the then treasurer Paul Keating did suggest that the abolition in 1985 had caused investors to leave the rental market, pushing up rents. “The tax reform changes have now been in place for two years, which would appear to be a reasonable period for adjustment to have worked through so that investors may again return to the rental markets,” the submission said.

However, it also said: “With the notable exception of Sydney, conditions in the residential rental property market are not unusually tight. The evidence suggests that local influences, rather than tax measures, dominate in metropolitan rental markets.”

Vacancy rates

Property markets typically move in a cycle. When vacancy rates are low, competition among prospective renters increases, giving investors greater power to lift the rents they charge.

Over time, increasing rental prices lead to an increase in vacancies. In turn, this reduces pressure on rents.

This graph from a 2003 Reserve Bank paper on housing affordability shows how vacancy rates and growth in rents move in opposite directions.

During the period when negative gearing was abolished, Sydney and Perth had the lowest vacancy levels of the capital cities.

Sydney’s vacancy rate was 1 per cent and Perth’s was 1.4 per cent.

The 1987 cabinet submission noted: “The market in Perth has been easing after tightness during the America’s Cup period”.

In contrast, rental markets in Melbourne, Adelaide and Brisbane were not at the same stage in the cycle.

Melbourne and Adelaide in particular experienced an extended period of low rental vacancies from 1982 to 1984.

ABS data for this period shows that in response to the tight rental conditions, real rental price growth in 1984 was over 6 per cent in both cities.

In response to rapidly increasing rental prices, vacancies started to increase in Melbourne, Adelaide and Brisbane, and there was a corresponding fall in rental price growth as market conditions became less tight.

But the data shows that vacancy rates were higher in Sydney and Perth in the early 1980s and fell rapidly in the mid 1980s.

During the period when negative gearing was abolished, Melbourne, Brisbane and Adelaide were recovering from a period of tight rental vacancies and associated high price increases, while Sydney and Perth were entering a period of tighter vacancies.

Some proponents of negative gearing argue that abolishing it reduces the number of investors willing to invest in rental properties as investment is less attractive. It is argued that this reduces the supply of rental properties, and therefore makes markets in all cities tighter.

This did not occur uniformly from 1985 to 1987, with rental vacancies steady in most cities other than Sydney and Perth, and even increasing in Brisbane.

Bigger factors at play

The 2009 Henry review recommended changing the way investments in rental property are taxed to ensure a “more neutral” treatment of rental property investment.

It said if this was not done gradually, it could lead to the supply of rental property being restricted.

“Phasing in the [reform] over time would allow investors to adjust to the new tax settings and reduce the potential for market disruption. In particular, a smooth transition for highly geared investors in rental properties would limit any short-term disruptions in the supply of rental properties,” it said.

While this lends support to the view that removing negative gearing could result in higher rents, it also indicates a way in which the impact could be moderated.

In any case, the review also said other factors had a bigger bearing.

“While these reforms will address the significant distortions the tax system has on the housing market, a range of non-tax policies have a more significant impact on housing supply and affordability,” it said.

It referred to planning and zoning regulations, approvals processes and the allocation of infrastructure.

What else was affecting rents at the time?

During the mid 1980s, interest rates were high and the stock market was booming.

Mr Keating’s cabinet submission from 1987 said: “High interest rates on financial assets and the prospects of capital gains on the stock market have reduced the relative attractiveness of investment in rental housing.”

In a 2013 report, the Housing Industry Association notes that in 1986 and 1987, mortgage interest rates were over 15 per cent, and says “there is a very strong linkage between interest rates and rental price inflation, with the two variables generally moving in tandem”.

It says higher interest rates increase mortgage servicing costs, which makes renting more attractive than buying a home. Therefore consumer demand for rental properties increases, which pushes up rents.

At the same time, higher interest rates increase the cost to investors of holding rental properties. This encourages investors to increase rents to pass on their higher costs.

Between August 1984 and September 1987, the All Ordinaries index rose by 223 per cent. The ACOSS report says this “diverted investment from housing”.

Lower investment in rental properties limits growth in the supply of rental properties in Australian cities. This can cause rapidly increasing rental prices.

The ACOSS report said the Sydney and Perth property markets were already “overheated” when negative gearing was removed and apart from the effects of the normal property cycle on these markets, the “main causes” of a slump in property investment were higher interest rates and the stock market boom.

“After the share market crash of 1987, and the easing of interest rates in its wake, housing investment boomed,” it said.

The verdict

During the period that negative gearing was abolished real rents notably increased only in Sydney and Perth – where rental vacancies were at extremely low levels.

This is inconsistent with arguments that negative gearing was a significant factor, with negative gearing likely to have a uniform impact on rents in all capital cities.

At the same time, high interest rates and the share market boom of the mid 1980s increased consumer demand for rental properties, encouraged existing investors to pass on high mortgage costs to renting consumers, and discouraged additional investors from investing in the rental property market.

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.

Mr Hockey’s claim doesn’t stack up.


  1. Researchtime

    The problem with that kind of analysis is that everyone accepts that Perth and Sydney were not good examples, there were localised booms, and property prices rose… likewise Melbourne, Adelaide had localised busts. The data for NG covered such a short period – no evidence could be gleaned either way, and to argue so is disingenuous IMHO. Not unlike now – I mean seriously, who is going to invest in a new build with gross rents averaging 2.9% in Sydney – and fixed rates at 7%. Seriously… ask the question guys!!!!!

    The answer in fact, may run against your argument. And its just common sense. Have a look what happened overseas with comparable jurisdictions…

    What can be gleaned is that NG is structural, its not responsible for this current boom. And if anyone is idiot enough to generate losses to claim elsewhere, holding a large illiquid asset that could crash at any time – they should be congratulated, because its crazy brave. The math simply does not work, with interest rates so low, the whole thing is loop sided. The amounts claimed cannot possibly amount to much?

    Any panel with CR is going to fair and unbiased!

    Why is this such a bone for you UE? There are far bigger forces. The more I think about this, the more I conclude we are going to have to drop NG for existing houses – I accept that. But you are going to have to INCREASE NG for new builds! Sometimes I visit the Ponds development for a look, new housing area in Sydney, and there are bugger all new houses being built. Thats not good.

    • I believe there’s also non cash deductions such as depreciation (lol yeah right!!), not just interest. It’s another support for RE bubble and therefore must be removed – even if it’s not the worst offender (CGT discount).

      • Researchtime

        Granted – but everyone ignore the big question… if you drop NG and cut CG’s – why would people invest in rental properties? Do the math! That is the biggest criticism above – it simply does not work under the current environment. Its all words and no numbers. I reiterate – THE MATH DOES NOT WORK…

        The only reason why people are investing now is capital gains – especially the mums and dads. And this up coming crash will utterly destroy the superannuation system for many.

        Look I don’t know how this will play out. But its going to be bad – and if tens of thousands of properties are repossessed – it will be the banks decision. And quite honestly, I don’t see them running family homes for social reasons. They will flog them…

      • if you drop NG and cut CG’s – why would people invest in rental properties?

        Because prices will drop to the point that yields make it lucrative like it used to be. Duh!

      • FF, the problem with that is that if prices drop, developers will hold off developing and you’ll be back to your supply issues again. They’re land bankers. Unless the govt also changes the rules around land banking and increases the supply (lowering cost of new land) then the problems will continue.

        Our land/property market is so screwed up that it’s not just about removing NG…it has be wholesale reform. And that’s not going to happen with any of the clowns in or around power at the moment.

      • RaglanParade

        Property Investors / Developers would still developing – but new home buyers would find things more attractive, and all the out of work builders will start requiring work.

      • @greg

        Sure, we need to fix the lot. But most investment properties are not new builds.

      • @ff exactly an investment needs to stack up on its own merits.

        @rt I don’t see anything bad with the over leveraged going to the wall. It’s a double edged sword and both outcomes are acceptable. One is sustainable and equitable so I vote mean reversion with ears pinned back.

        New build “investors” get reduced stamp duty if buying off the plan, repairs covered by builders warranty, depreciation deductions… And it never goes down in price! 😉 It’s a pretty sweet deal if PI is ones thing.

        Rent always covers a need in the market but it should not replace the opportunity for an OO to buy a place of their own. It’s gone too far!

      • “FF, the problem with that is that if prices drop, developers will hold off developing and you’ll be back to your supply issues again. They’re land bankers.”

        Land banking on falling prices sounds like a sensible strategy. Let them try it.

        Edit: Land banking is a rational response to a fall in prices if you think it’s temporary and you can cover your interest and other costs while you’re not developing and as long as your reduced value land bank doesn’t breach any debt covenants.

        It’s not necessarily rational if a structural change is made like removing negative gearing which could drop prices significantly and take a while for them to return to current ones.

        Holding costs can also force developers to either develop or sell.

      • Greg,
        So how long can they hold off for? I doubt there’s a business model for holding land indefinitely.

      • @Researchtime – “why would people buy investment properties”

        1. We don’t want them too. All the greedy speculators can disapear and there would be no loss. It would make room for, you know, those mysterious owner occupiers.
        2. There would still be investors, of course. When prices drop, yields will become more attractive. It should scare off the speculators and bring in actual investors.

    • I agree with you to the extent that once any change to an environment is announced, it is immediately factored in and included in all future transactions. But your Budget is in need of repair, and ‘changing’ NG and other existing past encouragements to the property market is one way to help.
      The primary reason that property prices have escalated beyond norm of the recent past is access to debt. 40 years ago when we bought our first home, we couldn’t NG it…or anything else…because to move ‘up the ladder’ we had to sell what we had to meet the existing borrowing rules for the new place. It wasn’t until 1984 that having bought-before-I-sold that I was offered the option of keeping what I had and using that as collateral against the new purchase. And I, and many others did. It is access to debt tat has seen us get to where we are; property and all other wise…..

      • Researchtime

        OK – $12bn in losses – granted UE’s data suggest the majority had only a $70k average income (who knows given they are counter claiming) – so apply a 25 to 35% discount, and yes you are losing $3-4.2bn in tax 9and thats probably a massive over estimation).

        But ask the question – what would be the cost if Government had to build social housing to replace everyone wanting to be a landlord? It would probably be double that at a minimum…

      • But why would they have to? The existing houses/apartments themselves aren’t going anywhere; they’ll just change ownership from rental to owner- occupier if the prices adjust as much as both you and I see them doing? As for future building; even if the actual build component of the structure remains constant, there’s heaps of adjustment that can be ‘encouraged’ in the land component to entice new landlords to build at a better real return…..Besides, even if the Government had to do the building – that’s a one-off. Abolishing NG is a saving, year in year out?

      • “But ask the question – what would be the cost if Government had to build social housing to replace everyone wanting to be a landlord”

        And the existing houses would disappear to where? And why wouldn’t yields rise until being a landlord without negative gearing made sense?

      • TheRedEconomist


        Who will build the social housing?

        Developers in my area (Dyldam) have managed to get some pretty big developments through council due to regulations that a percentage of the units being available for low income earners.

        I am sure this model could be used.

        So they will be built.

      • In the 1980’s, government policy favored owner-occupiers over renters (exactly the opposite of what is now the case). OO’s, by law, could be charged a maximum interest rate of 10%, but investors were being charged 14%.

      • Hmmm… I am not sure. Its all about returns – clearly the majority of posters are not investors. They just don’t get the point I am trying to make. I have just been forced to move, the property I am renting is going on the market (hold no grudges against the owners, its good timing for them). But my rent has just gone up 60% trying to find something my family can actually fit!

        I think people here have not much of a clue – structurally we have a huge proportion of people leveraged to become landlords – all banking on capital gains. And yet in the midst of a major housing correction, which could be 30-40% over half a decade – all of you expect the number of landlords to remain the same?

        That just fails the common sense test – something will change. And maybe its rents will have to climb 40-60%! Its a bugger – but its a fact of life. Then the same number of renters will exist, maybe. Who knows??? Touch wood I won’t be chasing social housing…

      • @RT

        That just fails the common sense test – something will change.

        Sure. From experience overseas, prices fall and the property is sold off by the bank. Bought by OO or new investors. New investors can afford to drop rents or not but in either case it will be a much better yield position for them. I would consider investing in housing if I was getting a 5% net in the current environment minus NG.

        The point is, the houses don’t sit empty for too long.

      • @rt,

        As I observed earlier, there are at least two empty rentals in my street, and others in my previous street. If their owners were forced to sell, their occupancy couldn’t get any worse, and would most likely improve.

        Many landlords appear to put a very low priority on keeping their properties occupied, most likely because the yields are so terrible. If there was any improvement in yield or leaking of properties back to OOs, occupancy rates would improve very quickly.

      • Yeah thats a stuffed outcome… then you end up like Europe!

        As an aside, one of the property analysts I worked with in London, one of his clients told him that their investment horizon was 600-800 years. That just blew his socks off… then he realised that one of the projects he was looking at was just being developed, in the centre of London, having being flattened by the Blitz some seventy years before.

        Everyone here today is about here and now – the Chinese (God bless them) have a slightly longer view. We are a new country, a growing country, the decisions we make now will reverberate for centuries in a myriad of ways. Be careful what you wish for!

      • But my rent has just gone up 60% trying to find something my family can actually fit!

        We are not interested in your anecdotes. The data proves that rents are low and therefore there is no shortage! Perhaps you are just a poor negotiator. I can find you a 3-bedder in Sydney for $300 per week.

      • Everyone here today is about here and now

        Maybe because they can’t afford to think anywhere past that? There a select few on the face of the earth that can afford to think about a 600 year horizon.

      • I think people here have not much of a clue – structurally we have a huge proportion of people leveraged to become landlords – all banking on capital gains. And yet in the midst of a major housing correction, which could be 30-40% over half a decade – all of you expect the number of landlords to remain the same?

        I think they expect the number of dwellings to stay the same.

        Some renters will become owner occupiers. Some landlords will be bankrupted. Some landlords will gain additional properties.

        That just fails the common sense test – something will change. And maybe its rents will have to climb 40-60%! Its a bugger – but its a fact of life

        Rents cannot go up significantly. They are already high, and people stretched, as it is.

        You seem stragely fixated on the premise that things cannot go badly for property owners.

      • @RT

        At the end of a bubble – it goes badly for everyone…

        Some more than others.

    • When house prices fall enough people will be able to afford to own instead of rent. Sure, let’s allow NG on new builds also.

    • There may not be new houses being build, but there are plenty of units and apartments. In Westmead, there are 3 medium density apartments developments ongoing in one street alone, and a few more have development approval.

    • Why is this such a bone for you UE?

      Leith is on holidays, Chris posted this. Its a bone because its grossly unfair, distorts the property market in favour of wealthy investors, does nothing to increase supply, and costs the government billions in lost tax revenue. Apart from that its a great idea!

      The real question should be: Why do you defend it?

      • Leith is on holidays

        Well, so he tells me. Obviously its a Clayton’s holiday.

      • Well said Lorax +1

        EDIT: See I do appreciate when you write sensible things! 😉

      • Vested Interest.

        Negative Gearing needs to be abolished on Established houses.
        Negative Gearing on New housing, needs specific conditions, like only the upkeep/maintenance should be claimable.

        Then macroprudential on lending… No more Interest Only mortgages from here on out. And all current Interest Only can expire but no more Interest Only after that.

        If YOU want to be a landlord, then make sure you can afford it. Capital + Interest payments.

      • “distorts the property market in favour of wealthy investors” – yet only 30% of total mortgages are investor mortgages. I would say idiotic (mostly) Sydney owner occupiers, enticed by low interest rates and desperate to not be left behind, are the major dynamic in the market. NG can not by itself explain property booms because it existed for the 7 or 8 years of slow growth in Sydney property prices up to 2010/11
        “does nothing to increase supply” – if it is true that NG makes property investment artificially attractive, why would it not encourage supply? If, as you say, investors are lining up to outbid owner occupiers, wouldn’t this be encouraging to a developer who is assessing the risk of getting his product away? “costs the government billions in lost tax revenue” Yes it does, but curiously there was no anti NG chorus while Sydney and Melbourne property prices were flat, yet that is exactly the time there should have been the most concern as CGT receipts are lower in periods of low/flat growth. This suggests that the current anti NG chorus is motivated by envy not by concerns over the tax base or equity. For the record, I am in favour of removing NG but allowing net losses to be carried forward to offset real capital gains. This is mostly to put a stop to half-witted investors who think property always goes up and who actually believe “the tax office covers my losses” – no tax deduction can cover a loss unless your marginal tax rate is 100%!

    • “And if anyone is idiot enough to generate losses to claim elsewhere, holding a large illiquid asset that could crash at any time – they should be congratulated, because its crazy brave. ”

      This is where you’re wrong, RT. Your typical speculator sees it more like this:
      “I’m so savvy I use my IP to bring down my tax bill and have my tenant pay off the mortgage for me. There’s never been a property crash in Australia and leverage is what’s going to make me rich. I’m man enough to borrow with my ears pinned back for this free money. Anyone who doesn’t is just an idiot.”

      There’s just no perception of the risk.

      • And smoking didn’t hurt Yul Brynner for 10 years after he quit and heroin and alcohol didn’t hurt Lou Reed for nearly 40 years after he quit, The damage and risk were pretty real in each case, though.

    • Why have investors continued to flock to the housing market when negative returns are all that’s on offer?

      You obvioulsy don’t do much research time as fixed rates are well south of 5% these days.

      Can you explain why NG on new builds will have to increase? Surely you’ve seen the graphs that show the inverse relationship between investors and FHBs. As the speculators withdraw from the market FHBs should more than fill up the slowing demand.

      Quaratining NG to the income of the asset is definitely the way forward. Removing the halving of CGT is also good policy. Rents may or may not go up or down. The market will have a bit of an adjustment phase but the continual drain on the budget from this faulty policy will start to be alleviated, allowing the Govt to invest some extra money into public housing should rents rise like is argued, though with slower price rises there should be less demand as renters can afford to buy new stock.

    • And if anyone is idiot enough to generate losses to claim elsewhere, holding a large illiquid asset that could crash at any time – they should be congratulated, because its crazy brave.

      Last time the numbers were analysed here, that classifies some 2/3 of investors as “crazy brave”.

    • It’s a reasonable question, why would anyone invest with yeilds so low. Well at the moment because “house prices only ever go up” ie. stupidity.
      In reality sensible investors have two potnetial revenue streams for investment in property.
      1) Capital gains through increase in land value. This is speculative rent and entirely underisable for the economy. It’s also independant of rental returns and works nicely with negative gearing to prop it up. My preference would be to capture the entirety of the land rent with taxation and eliminate this option entirely as it creates bubbles, raises prices and is generally poisonous.
      2) Rent on the improvements. This is really earned returns on real investment in an asset. It’s subject to depreciation but encourages actual building and improving property. Right now land prices are so high that rental yeilds make this revenue far too low for a sensible investor. Negative gearing doesn’t apply much as the property would need to be actually earning rent. Investment with this as the revenue source is constructive and adds to supply. But as mentioned speculative investment drives up prices to the point where returns from improvements become non viable.
      Fixing negative gearing hurts the speculative rentiers and not the actual investors. A land tax would also hurt speculators and by lowering prices might make investment a real option again.

  2. RaglanParade

    I have a very undiplomatic view of negatively gearing.

    Italians, Greeks & Asians don’t like paying tax (see many cash only businesses).

    Australia has many many people of these backgrounds.

    I’ve heard people argue that it was actually the Greeks and Italians that started the property investment game in the 70’s and 80’s.

    A lot of these people come from countries where banks have collapsed and people have lost everything.

    Housing is seen as an asset the Government or Banks can’t touch if it’s owned outright.

    The first aim of property investment is to own a single house outright. Then you build up the game from there.

    Self employed people with cash only businesses are building huge property empires by structuring their businesses cashflow and private tax business to ensure there is maximum cash and no tax.

    I know it’s an undiplomatic view of the world – but I feel it’s these people (some of which are boomers in the case of Greeks and Italians) driving it more than just Boomers in general.

    • It might be an undiplomatic view but a rather realistic one. The house owning culture is very strong in many ethic backgrounds also.

    • You make a reasonable point about the investors of the 70s and 80s being the drivers. But I think it had little to do with NG but rather an intense distrust of the banking system and hatred of paying tax on savings. A friend’s dad owns half of Yarraville, mainly blocks of flats and he simply kept accumulating as he saved cash from his fruit and veg business. Another, a painter did the same and amassed 20+ properties on the Mornington Peninsula. These guys didn’t borrow. I suspect they didn’t have an income to borrow against, such was the cash nature of their businesses. And they were the days you could save and pay cash for property…….rapidly if you had a good business.

      • RaglanParade

        Agree – many of these properties are positively geared now, but negatively gearing helped many ‘New Australian’ families build little property empires in the 70’s and 80’s..

        I can assure you that a lot of these ‘family empires’ are now structured across children, grandchildren, trusts, etc. – so that all people within the ‘family empire’ are paying minimal tax even if they are now in professional roles.

        You’ll find the ‘cash only’ business still exists in some cases (but not all), and many of the children and grandchildren used the spoils of property investment to be educated into Accountants, Doctors, etc.

      • Mining Bogan

        Yes, I know a couple of families in NQ towns who did the same. I remember one lady getting confused about whether they owned a house they were standing over the road from. She turned to her hubby and asked how many they owned. He shrugged and gave a dunno.

        They bought, saved, bought, saved, etc. Didn’t need to borrow.

        It’s cheap money and stupid tax deductions that got us where we are today. Greed and ignorance. And there’s no way out wirhout seeing a mushroom cloud overhead.

      • Know of many families like that. Both my parents and in-laws have done very well. However, none of them believe in NG or the CG model. Either the yields hold up or there is value to be improved for them to invest.

      • RaglanParade

        I personally know one Italian lady in her 70’s that has told me.

        “The biggest mistake you can ever make is selling property. You buy, you pay off, you hold, you use the rent money, you pass on to children, they do the same. “

      • @Raglan

        Its a smart advice.
        Assuming the individual really do PAY OFF the 1 house, then buys another one to live on then uses the one paid off as a means of income… positively geared. Nothing wrong with that. Making money off a OUTRIGHT owned property.

        The problem lies on the 80K a year individual having 3-4 mortgages on Interest Only, not intending to pay any of them off, relying on speculation to make money… whilst claiming benefits on taxes. These are the ones that will be the first ones to buckle.

    • I work with a few people of Greek and Italian background and amongst this small sample I can vouch for what is being said. They like to own things, don’t like paying tax, and only like to spend money upon themselves, and within their community. Which is all fairly natural and I don’t begrudge them for it. It sounds a bit like myself when I think about it. They do love their houses, family trusts, negative gearing and cash economy. A land value tax is the only way that you’ll get anything out of them. The same goes for Anglo Bogan tradies, Jewish accountants, Asian shopkeepers and any other stereotype that you want to throw into the mix. PAYG is for the suckers of the world, like myself, who went to uni and pursued a career.

      • RaglanParade


        GST and Land Value Tax are pretty much the only two taxes that these people struggle to avoid ?

      • GST evasion, not avoidance, is rife in the services industry. No wonder Howard’s battlers loved him.

        Increasing GST in the face of declining or stagnant incomes growth will be disastrous. Time to shift the focus to wealth.

      • “Time to shift the focus to wealth.”

        Absolutely logical but absolutely no chance under the Liberals…or likely today’s Labor. If I had my way I’d introduce a progressive annual wealth tax with a high threshold and no exemptions.

    • Annoying Devil

      South East Asians, Southern Italians/Greeks boomers were money struck. Coming to a wealthy country from places that had been poor, uneducated and backward for centuries does that to people. Negative gearing was icing on the cake.

    • Raglan

      Greeks, Italians and Asians came from areas In those countries where 3 generations of families lived in one building (sometimes three stories with parents on one floor and a child and their children in the others). They understood about being crowded out and having to compromise.

      I still reckon we’ll head that way. Our society is becoming one of land lord and serf.

      Per kerry packer…

      “I am not evading tax in any way, shape or form. Of course, I am minimising my tax. Anybody in this country who does not minimise his tax wants his head read. I can tell you as a government that you are not spending it so well that we should be donating extra.”

    • This is unfortunately fairly accurate however something I DEFINITELY do not subscribe to.

  3. The Patrician

    “NG for new builds only” makes Joe’s “rent increase” scaremongering redundant…… as well as false.

    • RaglanParade

      Last night I was driving around Pakenham, Officer for the first time in about 5 years.. and I was surprised by the lack of progress down there for a supposed booming area.

      Many of the estates that were started in 2007 are still only half built.

      It got me wondering if the problem isn’t Negatively Gearing for new builds only… but instead putting “best possible use” land tax provisions on all the developers that bank the land. If they are forced to flood the market with land en-masse … then the land price devaluation will ripple it’s way into the middle and inner ring suburbs….

      If Melbourne actually fully developed it’s existing Urban Growth Boundary with new houses (instead of developers unfairly screwing the system), the jobs boom would be huge !… even without NG on new builds.

      • RaglanParade

        You could absolutely do both – but it would hardly be required.

        As the crash would shift people from being renters to owner occupiers – making ‘property investment’ less lucrative to the so called ‘battler’ class.

      • The Patrician

        “..but it would hardly be required”

        You underestimate the resilience of the beast. It is a common mistake.

      • RaglanParade

        I wouldn’t say underestimate.

        But I think once the beast breaks – it’s going to be one hell of a ride.

      • Last night I was driving around Pakenham, Officer for the first time in about 5 years.. and I was surprised by the lack of progress down there for a supposed booming area.

        Many of the estates that were started in 2007 are still only half built.

        But if you talked to one of the people flogging those blocks any time in the last 7 years, they were all selling like hot cakes, and they only had about three blocks left you could buy. Then if you spoke to them again at any random date afterwards, they’d secured a new release, but those had sold like hot cakes and now there were only three blocks left.

    • If new build prices are currently comparable with existing property, surely negative gearing for “new builds only” creates a poison pill for those new builds, in that new builds will maintain their cost base and prices for existing build property will reduce when the negative gearing benefits are removed? The resale value of privileged new builds will be reduced to the value of unprivileged existing property, and hence the “new build only” negative gearing is unlikely to have the desired effect of increasing new building rates. Perhaps the negative gearing regime needs to be time based, so that it is reduced gradually as a property ages? Sounds complicated to me.

      I think that far more needs to be done than simply playing with negative gearing, mainly freeing up the supply side. Perhaps a tax on unoccupied building blocks owned by corporates to make land banking less attractive. Reducing development imposts and increasing ongoing rates to alter the new/old tax balance further.

      • RaglanParade

        That’s why if you put a special “Land Development Tax” , which taxes all vacant land inside the Urban Growth Boundary – at a rate of ‘best possible use’ (i.e. residential real estate). It frees up supply.

        if a 500m2 block is $250,000 in a new estate – than you tax all vacant land within the boundary as if it was worth $500 per m2.

        I believe the current rates reflect agricultural use – not residential.

      • The Patrician

        “..the “new build only” negative gearing is unlikely to have the desired effect of increasing new building rates..”
        Do you have any data to support this claim?

      • No data, just extrapolating the likely result. Yes negative gearing should apply, if to any property, to new build preferentially, but the changes need to take account of the implied future value of the property by some means, otherwise I don’t believe it will work as expected.

        I think that measures such as that suggested by RaglanParade are an essential part of what is required.

  4. Forrest Gump

    Did anyone hear Joe H on the news just after the interest rate cut, spruiking people to “Now is the time to invest…with interest rates at all time lows…” ?

    It was disgusting. He sounded like a real estate agent

  5. I just wonder…it can’t be just people in MB that can see this economy is now so distorted beyond imagining and that there is no way to reform it. Maybe this is just the desperation to keep the whole load of baloney going for a bit longer? Do anything! Say anything! Anything to stop TSHTF.
    When this blows up, by accident or design, the damage is going to be nigh on unimaginable. It won’t be just housing that will crash.

    • LOLOLOL! You are such a pessimist dude! Hey, people have been pessimistic like you for decades and they could have been profiting instead! There will be no “blow up”, just smart hot looking people getting richer and richer! Deep down inside you know it to be true!!!

    • The problem is that too many people like my wife believe that property prices will never go down in Sydney, This is not based on anything except the belief that prices will never go down.
      Just as Jesus rose from the dead, prices will rise to infinity.

      I am having an ongoing argument about purchasing an investment property, I belive it is too risky at this stage but i’m at the point of folding. Why not just go All in and buy two or three.

      Mind you, she has no idea about the concept of Negative Gearing, and her eyes glaze over when I try to explain it.

      • Annoying Devil

        I know the frustration and futility of arguing with a house horny housewife to wait when prices are expanding faster than her backside. I tried the logical argument, by describing the unsustainability of it all, but to no avail. Prices only go up she says, and that’s the way it’s always been, wages, incomes, economy has nothing to do with anything.

        I have tried the risk argument, patiently and calmly describing the danger of heavy leverage into a fragile economy with low job security, a mining bust and with central banks around the world employing all kind of unusual monetary experiments. But that just causes her eyes to glaze over and storm off muttering how nobody knows what the future holds. Apparently, nobody can predict the future except the Domain,, friends who just bought, and a realestate agent friend, a visionary who portends a vast hoard of chinese investors locking us out forever if we don’t buy now.

      • Ditto Alku and Annoying Devil, but with some success, though that comes with collateral damage.

        Our (possible) future balance sheet is instead now compromised by relying on the maintenance of discretionary spending in a niche market, FFS.

        The subscription to MB delivers evidence like this piece today ‘Woolies cuts 800 jobs amid dragging sales’ that will be used to counter the emotive urge.

    • It’s not just MB.
      – Fitch has now officially called out the bubble
      – The IMF has dispatched a special team to “report” back to HQ on the bubble
      – RBA are paralyzed because of the bubble
      about the only people who can’t see it are Joe Hockey and all the idiots currently buying houses.

      • I expect Hockey is well aware that it is a bubble but he also knows that as long as he is treasurer he can keep enough money flowing into the trough to keep the bubble inflated. When Joe sells his investment properties we will know there is nothing more that can be done to save the bubble.

    • Pfft…ABC today stands for Abbott’s Bullshit Confirmed.

      If it comes from one of our Tony’s mates then it will be repeated time and time again.

    • The libs threats and cuts to the ABC have really made it a shadow of it’s former self. The ABC seems to scared to really put some of the facts out there prominently.

    • They need to sit those wankers from the Today show down and make them watch this until they understand the rather simplistic message it makes….then waterboard them.

  6. Despite Hockey’s bullshit, NG has a significant contribution to increasing rents.
    The focus is on NG and its affect on rents.

    NG and the 50% tax concession provides financial support for landlords to have their properties remain vacant while they cherry pick tenants that will pay higher than market rents.

    This is advertised in investment magazines and in the AFR on April 16 where the landlord stated she was happy to run at a loss since she has a capital gain of $700,000.00 odd!

    • Yes this is a seldon mentioned effect of Negative gearing. Obvious once you and other pointed it out. Negative gearing concessions allow and encourage landlords to make losses and have empty property waiting for a buyer at their high rents. Removing negative gearing would force landlords to shorten vacancy times and accept lower rents.

      • Removing negative gearing could increase availability of idle rental stock? That can’t be true! (speaking as the next door neighbour of a house that has had a ‘for lease’ sign for more than 8 weeks, approximately 10 minutes from Melbourne CBD)

      • @TP,

        Exactly so.

        ( Makes you wonder – in that postcode and similar places – does it ever happen that tenants, realising that they are outnumbered by vacant properties, make lowball offers and find they are accepted?)

      • Forrest Gump

        I’m aware of a number of properties in East Perth on the river that were being rented out during the boom for $550 per week and have now been empty for 8 months.

        As each new month rolls by the agent/landlord, lowers the advertised rent by $10.00. Some are currently sitting at $400.00 per week…..and still no tenants.

        Negative Gearing and the tax concessions keeps rents high Mr Hockey, but you really don’t care…right? .

        Negative Gearing. A great way to get a lower tax bracket with an empty investment property!

  7. Another big load of “shouty bollocks” about “facts” surrounding the ancient and traditional Australian rort of negative gearing in the corner of the internet called Macrobusiness. :roll:

  8. Meh. Joe Hockey don’t care, and neither does his ageing, asset-rich base. I hope he introduces a special tax on savings in bank accounts (but only when held by workers, not pensioners of course) as a disincentive toward ‘unproductive money hoarding’ and uses it to fund a home-investors grant that can be used on existing builds.

    Anything that will make the crash harder is OK in my book; it’s the only hope Australians’ have of actually learning anything. If you’re going to go full retard, and drink the slab that Bon Scott drunk, you might as well go all the way, and keep going until you can’t anymore… ‘on the ground, convulsive throes, I said I’ll have one of those!’.