Real estate parasites demand tax deductible mortgages

For the rent-seekers in the property industry, no amount of taxpayer subsidies or interest rate cuts are ever enough.

Despite the Australian property market defying the COVID-19 downturn thanks to massive taxpayer stimulus and RBA intervention in the mortgage market, which has driven first home buyer (FHB) demand to new highs:

The Real Estate Institute of Australia (REIA) has used its pre-Budget submission to call for interest payments on mortgages to be made tax-deductible for first-time buyers:

REIA President Adrian Kelly said there was a need for policies and investments that would continue to drive growth in the property market, and help property market players as Australia emerges from the pandemic.

“Wherever you are in the housing market, an agent, tenant, buyer, investor or vendor, there should be support for you in the next federal budget to have confidence to succeed in a COVID-normal Australia.”

“REIA estimates (making the interest portion of mortgage payments tax-deductible) would provide a benefit of around $4000 per annum to Australia’s first home buyers, which NHFIC places at around 15 per cent of the housing spectrum,” Mr Kelly said.

“At least six other OECD nations have a similar incentive.”

When a similar scheme was proposed four years ago, the Grattan Institute warned that it would cost the Budget $19 billion a year:

The Grattan Institute’s chief executive, John Daley, told Guardian Australia the deduction would cost the budget $19bn a year and do little to improve housing affordability…

A University of New South Wales economist, Nigel Stapledon, told Guardian Australia the cost to the budget would be “pretty substantial”.

Any demand-side stimulus like this would also be entirely self-defeating from a housing affordability perspective. Past experience has shown us unequivocally that such measures do not work.

Despite the massive decline in mortgage rates and the myriad of subsidies provided to home buyers over the years, the home ownership rate has decreased, particularly for younger Australians (see next chart).

Allowing buyers to claim a tax deduction on their owner-occupied mortgage would simply increase their capacity to pay and would soon be capitalised into higher home prices. At the same time, the Budget deficit would be expanded considerably for no benefit.

If you said to me five years ago that the Coalition Government would consider making owner-occupied mortgages tax deductible, I would have laughed at you. But after witnessing their antics over recent years – defending negative gearing and the capital gains tax discount, axing responsible mortgage lending rules, and implementing massive buyer subsidies – I certainly would not rule-out the Coalition introducing such a measure. They could try anything to support the housing bubble.

We are the property equivalent of a narco state, after all, where the property and banking industries pull the strings.

Unconventional Economist
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Comments

  1. Forrest GumpMEMBER

    Just wondering:
    If this comes to light:
    Can I buy a one as a first home buyer under my own name. Claim the interest
    Then use the equity (say after 3 years) and my wife buys her first home and claims the interest free. Then I negative gear the first home. Sure i understand I can already claim the interest anyway (both NG and as FHB), but I also get to claim the depreciation and other expenses….

    Just looking at how i can milk the system….

    • GunnamattaMEMBER

      This is logically where we are heading…….

      A nation of people – the most expensive people on the planet, using the most expensive land on the planet, and the most expensive energy on the planet, plugged into the rest of the human race by the world’s most expensive internet……….

      They are the very definition of the word ‘uncompetitive’

      The jobs they are employed in are all essentially government funded one way or another – as their cost structure sees them blown out of the water in any real market……

      They keep themselves deluded/engaged/busy speculating in real estate and participating in sundry house related belief affirmation rites. They elect governments capable of observing things their way.

      Of course that government will bring in tax deductable mortgages. These people live in a policy induced psychosis, why should they have to pay their mortgages, when any sense of them ‘really’ having to means they will have an economic downturn with sliding real estate prices?………

      They dont need to be competitive and they shouldnt have to pay, and their gods and their government need to reconcile them another way to any given economic reality other than ‘house prices must go up’

      So of course mortgages will become tax deductable. And the RBA can print money to make that possible. That makes sense! Indeed we need to build much bigger houses because that will keep more tradies employed!

      ……and in a thousand years time, archeologists will pore over sites of what had been known to be Australia, and wonder why the overgrown ruins of this ancient civilisation pointed to such incredible worship of the real estate gods……’

    • Strange Economics

      Dont forget that during Jobkeeper, allowing you to take 20K out of super was also a big mortgage support.
      Now its time to get rid of super increases, and then let you take money out of super – less money for unions too. All great !

  2. Noice….
    Next step is to expel and extradite anyone without a mortgage and make mortgage a compulsory requirement for permanent visa and IP for citizenship.
    Second gen immigrants and earlier without IP to be sent to Nauru and Xmas Island or deported to UK/Eire

  3. pfh007.comMEMBER

    It is a brillant idea!

    It will make every interest rate cut by the RBA even more potent and that will please all those poor deluded souls who think that ZIRP and NIRP by Central Banks to prop up the failing private bank centred monetary model is the best thing since sliced cheese.

    • call me ArtieMEMBER

      Mr Covid. I am not sure that is correct thinking. I think that rising long-term bond yields actually have an upward not downward pressure on a currency, all other factors held steady

      • Investors make more interest on the 10yr US bond than anything from Oz, so capital is withdrawn and $AU drops.
        Bond rates are the cost of money printed from thin air.
        Central banks can buy and prop up short-term bonds, but long term bonds are a different animal.

        • call me ArtieMEMBER

          Sorry. I see now that you were referring to 10 year Treasuries, I thought you were referring to 10 year Aust Gov’t Bonds.
          Yes, in that case your argument follows

  4. I think some modelling wouldn’t go amiss here. With current interest rates a mortgage on a house is almost the same as rent. With PPOR deduction it drops to 50%. Even with a price jump I believe investors would be completely priced out. I would take the deal personally.

  5. How good is this – we dont need money anymore (its becoming worthless), we just need more zero’s on our line of credit at the bank. Don’t worry about daily expenses, the offset account will allow you to buy the new Porsche with red stitching.

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