7.30 Report’s “House of Cards” (Part 3) does negative gearing

By Leith van Onselen

ABC 7.30 Report last night aired the final of a three part special on Australia’s budding housing bust, which is well worth watching.

The episode focussed on Labor’s policy to restrict negative gearing to newly constructed dwellings and to halve the capital gains tax discount.

The segment featured several commentators warning of calamity if Labor’s policy goes ahead:

JOSH FRYDENBERG:  It’s simple: If you own your own property, under Labor’s property, it will be worth less.

If you rent your own home under Labor’s policy, you will pay more…

GEORGE THARENOU:  My concern would be that if you were to make a material change to tax policy at the same time as banks are tightening lending standards, it could exacerbate what’s already a downturn to something a bit more serious.

JOHN SYMOND, FOUNDER, AUSSIE HOME LOANS:  It could tip Australia to recession.

And, you know, I don’t want to throw up a big balloon here, but I’m saying  you have to treat negative gearing very carefully and do your homework to work out what the ramifications will be…

I do feel sorry for young people who won’t have the opportunity to have an option of investing in home ownership.

It’s going to get tougher to jump on that bandwagon and come out as good a result as the baby boomers have.

Whereas in the interview afterwards, shadow treasurer Chris Bowen defended the policy:

CHRIS BOWEN, SHADOW TREASURER: Around the country, between 2012 and today, housing prices have gone up by 40 per cent and have fallen now by 4 per cent. Yes, there is some softening but let’s keep it in context…

The Government would have you believe that housing price falls under them are wonderful, are a Nirvana; and if it happened under Labor, it is terrible and the end of Western civilsition as we know it.

With all that as a given, Laura, the fundamentals are this: home ownership is still at record lows.

Some people in your story were indicating we should effectively give up on home ownership, that we should move to a rental society.

I’m not prepared to agree to that. I believe in the aspiration of home ownership.

If a young person doesn’t want to own their own home, of course that’s perfectly fine, but I don’t accept that we should just give up on those thousands, hundreds of thousands of young people in particular – not exclusively young people, but younger people in particular – who are turning up at auctions still, even in this  environment, and are being outbid and can’t get into the housing market…

The now Prime Minister, the then Treasurer said there were excesses in negative gearing. He knows there’s a problem. He doesn’t have the political courage to deal with it…

Laura: Part of the problem is that all the pressure has been put on APRA. APRA has been given the  entire job because the Government hasn’t been able or willing to deal with the tax concessions…

It [our negative gearing policy] will be a priority for me as Treasurer if we are given a mandate by the Australian people to get it legislated.

Basically, Labor views its policy as a long-term structural reform, not as a cyclical lever. This is the right approach. If 2019 or 2020 isn’t the right time to reform negative gearing and the CGT, then when is?

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Comments

  1. “I do feel sorry for young people who won’t have the opportunity to have an option of investing in home ownership.”

    Just confirms that Symond is a disgusting greedy lying pr!ck

    • ErmingtonPlumbingMEMBER

      Yes, He Just openly lies and obfuscates the truth every time his opinion is sort by the media.
      That he is not more Agressively called out by our Media is indicative of just how weak and pathetically conformist they are in the face of Coporate wants.

      • +1 You can’t say you want kids to have property ownership opportunity whilst simultaneously backing negative gearing and saying it’s removal will see the world end! Let’s not forget Labor’s policy will simply shift it away from existing housing to new, therefore it should encourage more building activity + create more work/jobs. But of course we can’t allow the asset bubble to deflate!

    • I’m glad he saw the sense in abandoning doing his own television ads – he comes across as nearly the sleaziest charlatan I have seen, enough to give Lord Littlefinger a run for his money.

    • Why does everyone have to invest in property in anyway? I hate everything to do with property personally, it’s the most dull and uninteresting market and asset class out there (well maybe not the most, but close to). But here in straya, it’s what everyone has to do, and f### all other investment opportunities, just force everyone to invest in property if they want a reasonable chance of a successful financial future via subsidies, tax breaks etc. F### the property lobby!

  2. What got me most annoyed what the young CEO for Archa, who will be providing ‘low cost loans for lifestyle purchases’. Anyone who uses this service does not get to complain about not being able to afford a house. I do believe houses are un-affordable, but going into debt for your overseas holiday is stupidity – even if it is a lower rate than your credit card.

    • going into debt for your overseas holiday is stupidity

      But what is life other than the experiences we have while we are here? And those loans are much smaller and quickly paid off.

      I don’t begrudge young people their alternative lifestyle choices. We boomers did things one way, they face a different world, more expensive, with an uncertain future, so they are making different choices. My own children have traveled much more than I did, and I love to see them doing it.

      • Yeah, exactly, what are young people supposed to focus on. The loans are probably able to be lower than bank loans for similar because they will focus on people who don’t have huge debts outside of these loans.

        It would be nice to see loans for small businesses and start-ups (whatever defines that now) but it’s pretty difficult to do that here – and the government is passing bills to make it worse.

        I don’t blame young people at all for wanting something in their lives besides sitting in Australia listening to our elites and boomers sermoning on the value of sacrifice and ladders and expectations.

      • —> more expensive, with an uncertain future, so they are making different choices. My own children have traveled much more than I did, and I love to see them doing it. <—

        It's not more expensive, it's relative, it's really only housing that's expensive shown by the fact that it's cheaper to travel overseas.

        It's a bit of an oxymoronic statement to say the future is uncertain, it's always uncertain, never more and never less.

        Given your fine offspring have chosen a jet setters lifestyle over saving for a home they cannot complain about not being able to afford a house but must instead champion the multitude of apartment high rises, whilst complaining about high immigration levels.

        Given my age and experience I can only imagine what happens when they are in their 50's, retrenched, now not being able to afford the rent…. and not being able to get another job soon due to their age…. and high immigration…..

      • It’s a bit of an oxymoronic statement to say the future is uncertain, it’s always uncertain, never more and never less

        No, now the uncertainty is higher, believe me, Rip van Winkle.

      • China PlateMEMBER

        as long as you justify it in your own mind all good then. But the environment doesn’t give a hoot

    • Once he makes his big bucks from this business he will be buying his harbour side mansion – all paid for by the young fools burning their money on conspicuous/short term consumption. Clever guy. They will get debt to repay while he will end up with a real long term asset.

    • May as well enjoy themselves watching properties correct… When housing debt returns to 4 times their income, they’ll buy and retain their standard of living. Good luck to them and DBN.

  3. It absolutely blows my mind that Australian’s cant seem to see that when you have a housing market where 80% of new investor purchase requires making losses on rent. That’s not the sign of a strong market, its a sign of a market that is so fundamentally unsound and weak that speculators require subsidies from less fortunate citizens.

    • Yeah, everyone thinks negative gearing helps them. What they are saying is, we are losing money on our investments lol.

      • And we pay them to lose money on their investments. We should be down at crown casino showering tax dollars on problem gamblers while we’re at it.

  4. I think I just had a small win on the property front.

    Just bought a very nice 4 level home at the same price the owner paid in 2008. It was a long drawn out exercise to agree on the final price – the house had been on the market for 7 weeks with no bites.

  5. davidjwalshMEMBER

    final observation by the UBS economist : “… the probability of the bad result (20-30% drop) is increasing every day but the market place doesn’t accept that as real.”

    stupidity?? or just straight out delusion?? …..

  6. Here’s my comment re: negative gearing.

    In short, if applied to new builds only, then more investment homes will be built.

    But more pertinent – and hardly discussed – is that the removal of NG will see a big change in the type of investment housing sought. More rental income will be needed. This usually means more tenants per asset.

    Yet most local authorities are starting to over regulate (or even outright ban) dual-occupancies, ancillary dwellings and granny flats.

    We need to get this sorted and fast.

    • It seems to me that it will have to return to the long-term prospect is always used to be – how attractive will it be for an investor to purchase a house from another investor since only the first one gets to claim the deduction. Most people that I’ve met that bought investment property indicated that they did so on the premise of a (relatively) quick capital gain, less so to reduce their taxable income. I’m certainly not against NG for new builds only – I’m just not sure it will trigger a wave of building for investment purposes.

      • The few RE investment talks I’ve been to have been first and foremost about reducing income tax.

        Capital Growth – while obviously necessary for the whole scheme to be beneficial – was talked about primarily in terms of being able to leverage into further investments.

    • Since property does one of three things, goes up, goes sideways or goes down, and only one direction, up is useful for Negative Gearing because capital appreciation makes up for your losses.
      The question is how long will it take for the masses of “investors” to realise that? and then….

    • Proper boarding houses will be needed like before the Second World War……………..middle class is voting themselves out of existence………….Labour party types loathe and despise working class here just like in France

    • I expect to see many garages converted into bedrooms, possibly with bunks. New estates have no room for a granny flat on tiny blocks. Slumlords gunna slumlord!

  7. Won’t matter anyway, the music has already stopped
    By the time it’s in 2021 FY, property will be 40/50% off it’s high and people will be to scared to buy again
    That’s how the 30 year mortgage cams in late 1930s Freddie and Fannie to encourage people to borrow again

      • Hey, why stop there? Go 1,000 years.

        Things get really cheap on a per year basis when you stretch out the amortisation period….funny that…

        What’s even funnier (not) is that loans have gone from 5-15 years (and ~1-1.5 wages) for the Boomers, now 25-40 years (and ~1.5-2 wages), and we hardly hear anything about how repayments would be absolutely impossible if the repayment/amortisation periods were the same…

        Yep, 1,000 loans and we can all have really low % disposable income repayments, have all the holidays we want, enslave our children, etc…

        Crazy.

      • Mark HeydonMEMBER

        Nah, interest only – an infinite term.
        In practical terms, 100 year term at current interest rates is only a couple of take away coffees a month different to interest only.

  8. Forrest GumpMEMBER

    Its evident from last nights program that those interviewed that are negative gearing simply do not understand what it is that they are doing.

    Its incredible that many people (I would like to say “Most”) do not understand Negative Gearing.
    I often hear work colleagues sprout about getting $Thousands of dollars back in tax because of it.

    I had one colleague sprout to everyone that he has 6 houses and he is getting a refund back of $30,000. I then told him that his real losses were therefore upwards of $60K so he’s in fact lost $30K. (The other $30K he will get back in tax).

    I tried to explain to him that you DONT get your losses refunded, the losses only reduce your taxable income.

    He would not believe it. He was adamant that he was making money (Excluding capital gains)

    • I have heard exactly this nonsense from several property “investors” who also could not be convinced of the reality of the situation that they had put themselves into.

      They believed that by making a loss in real estate they were in fact making a profit and Sticking it to Da Man through the magic of negative gearing. It’s absurd, surrealist nonsense, but then, that means it aligns closely with the rest of the property bubble, government housing policy, immigration policy and Australian life in general in the early 21st century.

    • LOL Yep, I had this discussions with the missus last night also when I saw these Lemmings on the bus ride through Western Suburbs of Melbourne. It was quite a laugh.

    • greedypuppyMEMBER

      Loved the investor lady who believed neg gearing was good for her tenants – the largesse of landlords is a thing to behold

    • I’ve tried to make this point here more than once (that people are being led into thinking that they’re getting something for nothing from the NG tax reduction by property investment shysters) and been told “don’t be ridiculous” pretty much every time by people involved in either a) Real Estate or b) accountancy/taxation.

    • been there… ol mate chortling wrt 20k refund. How much??? Hell,how much?? How much did you lose? blank stare. well how much did you write off? blank stare. orright what depreciation did you claim?? blank stare.
      He’s bankrupt x pt hedland

    • Right, it only makes sense in terms of capital gains. ie you are paying how ever many thousand each year minus negative gearing in order to get a huge capital gain somewhere down the road. I work in an office that also has accountants and that’s the point that they all make to their clients, while pointing out that property only goes up in price (as I sit here just shaking my head). The whole scam doesn’t really work without NG, and also doesn’t work if you are buying anywhere near the top of the bubble. In fact, you are right, it’s pretty much just a crazy risk proposition. Might as well just drop the whole crazy scheme.

    • This is why I get annoyed when people blame the system and not the idiots who use the system incorrectly. It is also annoying that critics of the system are often as confused.

      Keep NG, change CGT discount to the old indexation system if you must. That is all that is needed.

      • Forrest GumpMEMBER

        Yep. Keep NG if you must. Get rid of the capital gains discount. Most speculators wont know nor understand the difference.

    • It’s the sugar hit they get from the large tax refund at year end. It makes one forget they have been bleeding slowly all year.

    • The Wealth Navigator

      Forest your statement is not entirely true. Your deductions as a property investor include cash and non cash such as depreciation and capital allowances. it is therefore possible that this person has a tax loss of $60k but if their capital.allowances are more than $30k then they have not suffered a loss of $30k after tax but actually broke even or are cash positive.

  9. Bearish Anecdata.

    A colleague has spent beaucoup time and $$ renovating his house for sale as he needs to upsize due to the arrival of the third child.

    The auction was last weekend. No bidders, no bids. He’s not a happy camper, and I suspect that reality is setting in.

    I only just managed to hide my delight as I was Very Glad Indeed to hear some positive news about price action in my area of operations.

    • “I only just managed to hide my delight”
      – so does this mean you harbour a sociopathic psyche or is it simply because you rent? Or is it both? Poor thing you

      And now mb is against negative gearing? So on one hand its the dreaded immigrants to blame for price chaos, on the other its neg gearing & other statutory mechanisms.

      ? Perhaps pick a lane and stick in it. To axe neg gearing now is ludicrous on the simple basis that most if not generally all investors have already utilised it.

      So now young ppl face both a credit crunch & an inability to neg gear their 1st investment property? And when rents rise wont this lead to an even greater degree of taxable write offs on behalf of those already using it?

      • So now young ppl face both a credit crunch & an inability to neg gear their 1st investment property?

        But isn’t the whole point to not encourage young people to invest in property? Instead, to get them to buy property for its purpose – housing. Young people that are owner occupiers cannot negatively gear anyway. So how is this a problem?
        The other point is, housing is not categorised as a productive activity in the economy. It is inherently unproductive. So removing neg gearing will ensure young people instead invest in a productive function of the economy, not housing which is unproductive. This will set up a far more robust economy for future generations.

        I am not getting your point really. Why is it assumed that we should support young people investing in an unproductive asset instead of supporting young people for home ownership and a productive economy? Is it because you assume young people know nothing else other than flipping IPs for a quick buck like the previous generations have gambled on?

      • Rents won’t rise Linco. Rents reflect what the tenant can pay (ie wages) not the landlord’s costs.

        Landlords already charge as much as they can squeeze from the tenant. If they charge more they will lose the tenant.

  10. – What A LOT OF people DO NOT understand is that BOTH Negative Gearing & the Capital Gains Tax Deduction are a subsidy for everyone who benefit from high(er) property prices. Then e.g. banks can issue a larger mortgage and rake in more interest.

  11. This thread has convinced me Labor’s changes to NG will have a far greater effect on prices (down) than economists calculate. Because economists wrongly calculate that people understand it and understand yields and deductions and use it rationally.

    In fact people over-use it, thinking it will do more magic than it really does. And many let an advisor talk them into buying a property that makes no sense to buy, “because negative gearing”.

    So when it stops there will be far more future demand removed from the market than anyone realises.

    Love it!

    • Yup. Removing NG will only have a minor impact on prices because of the maths, but will have a major impact because of the sentiment. In a speculation driven market, sentiment matters far more.

      • Nicely put.

        It will smash the idea that with property “even if you lose, you are ahead” because you “get your losses back in your tax” (sic).

  12. Interest deduction on revenue account, revenue losses offset against other income; Capital Gains divided by 2. If the said property never was going to or never will make a profit on revenue account why is it ever allowed to be claimed as a revenue loss? Tax cases in the past would have knocked this out. There is nothing in the Tax Act called “negative gearing”. Why hasn’t The ATO hammered this as it would if a taxpayer tried it on Revenue v Capital for any other activity? ATO needs to be held accountable in this fiasco as well. If promoters were advising taxpayers that revenue losses can be offset against other revenue & the overall losses are ok because you’ll pick it up on Capital account then I call Part IVA! ATO should have challenged & maybe would have won. Promoter legislation could have knocked promoters of the “schemes” out as well. No need for any legislation change just administer what is in the Act. Perhaps it says more about what ATO personnel were doing as well!

  13. I have a felling that authorities in Australia don’t understand globalisation. Globalisation is by default very deflatory process. Full stop.