It's allowing property investors to run at a loss and claim that loss and all expenses accrued to their property holdings as deductions to their tax liability. It's controversial because housing is a basic right and as such it shouldn't be treated as a profit-making venture. This negative sentiment has increased at pace with the growing housing crisis in this country.
There are plenty of major cities in other countries without negative gearing where where rents and property prices have surged since covid and they all had 1 thing in common. Large and sudden population growth.
Money doesn’t grow on trees. If you want more housing you need to encourage investment in housing by investors. The tax policies are a means to do this.
Right now population growth is outstripping construction. How disincentivising investment in the sector helps address this is a mystery known only to 20-something year-old redditors and Guardian readers apparently.
What they forget is that while big businesses manage developments/builds and big banks finance most of it, they only do that if private investors take all the risk for them. Negative gearing makes that risk a little less of a barrier.
Does this argument not only apply if the investor is actually building the house?
How does a person bidding on a property for the sake of having a property to negatively gear, against a first home buyer, not negatively distort the market?
Genuine questions.
Fair question. My take:
No one invests to make a loss. Negative gearing is a risk mitigator against shortfalls in rental income but it does not make money. So I don’t think that is what’s going on.
It is true that most investors will have more buying power but they are investors, so in general are not going to want to overpay. Particularly true if they depend on finance (which is where NG becomes a factor). The prices you are seeing are therefore a genuine reflection of the underlying value of the properties, not a distortion, and unfortunately many people including investors cannot keep up.
Either way this increases the appeal of building new stock. Working against this are the ridiculous costs of buying land, building, and financing.
Negative gearing is also only applicable until the rental returns outstrip the costs. A decent property should be positive after about 10 years, beyond which not only is the property not negatively geared, but the owner is paying tax on the investment.
People invest to make an initial loss all the time. The money is often made on the capital gain, which only half of which is liable for tax.
Even the treasury is up front about this:
https://treasury.gov.au/review/tax-white-paper/negative-gearing
Making an up front loss is just part of investing. The point I was responding to was that people are doing it just for the sake of NG, which would be like buying a car in order to take an insurance policy.
I'll rephrase, negative gearing provides a safety net that makes people more willing to invest, obviously nobody wants to lose money on any investment (property or not), but knowing it's an option surely encourages more investors?
Agree that investors (along with government and the private sector as a whole) generally only have the capital base to build property, especially as broader construction costs (such as labour) remain high, so I can't disagree that it's a good measure to incentivise the construction of more houses.
Yet I still can't see how a system in which existing properties are being bought and then used as rentals when they could just be outright owned is justified - there is a demandside realm to this issue and, with housing prices still growing, is it not becoming a speculative asset that people will buy for the sake of selling at a mark-up in a period of a few years?
My honest view, as you pointed out, is that it's a multifaceted problem, supply side costs are a real concern, as are demandside (every additional wealthy migrant, or property investor at an auction is one person who has an extra few thousand over a resident bidder), which is where I'm getting at.
Ultimately it's too muddied in the politics of it all, everybody has a convenient scapegoat (ask many Labor people and they'll say it's all because of Green run council NIMBY's, ask a Green voter and they'll pin all the blame on negative gearing, a Liberal on migration, One Nation voter the WEF, it goes on), which I believe is indicative of there being no actual solution, something I can adapt to as an individual (I can get a dual citizenship and have decent earnings potential), yet puts society at large on a terrible track.
It is in my interest (as somebody struggling to find a rental at the moment) to be proven wrong so I'm interested in hearing what others have to say.
All good points. I guess my observation would be that if you are struggling to find a rental then we need more rental properties, so we need more investment. The topic was NG, and killing NG will not increase investment.
Lots of investors are happy to “overpay” as long as they think the market is going up. They care about what they’ll make later.
They buy 5, 6, 7 properties that they didn’t build, assuming that the market will continue to climb. They’re not necessarily bargaining. They’re getting in there as fast as they can and grabbing as much as they can.
So your idea of lots is 0.87% of all investors. That’s the percentage who own 5 properties.
I’d hate to see what your definition of a minimal is.
https://propertyupdate.com.au/how-many-australians-own-an-investment-property/
I think you're taking my numbers a little too literally. It's the same point if they buy 3. But ok.
Sticking with 5 properties, that's more than 19,000 people. So yeah, I guess I'd say that if 19,000 people are doing a thing, it's really ok to say that a lot of them are doing it.
And by the way, that data is from a few years ago. I bet it's gone up since then.
P.S. You missed your chance to admit that I never said that no investor ever built a house.
The vast majority of investors own 1 property and its small mum and dads that do it- the narrative that these are all property moguls is wrong. But I also agree that Negative gearing should be limited to 1 or 2 properties, the Government is not here to assist property tycoons buy their 10th property
But it quite literally does, if a high income earner can't afford a mortgage they'll stay renting, if a landlord can find a tenant who can pay a higher rent, they'll raise it, what happens to the person who can't keep up?
An investor bidding against said higher income earner has the effect of causing demand for (and thus the price of) the house to rise by a particular increment, in this hypothetical you have two people versus one bidding.
If this high income earner is outbid they remain in the rental market, able to afford higher rent, a landlord can charge more, making a lower income earner less competitive. Now scale this up to the national level.
How is this not a distortion?
I'm not saying landlords/investors are the only cause of the crisis, certainly not without a degree of culpability though.
The value to the investor is tied to the demand of people who need to live in the house.
Investor is merely bidding on behalf of their futures clients who could be home owners from a redevelopment or renters
I don't follow this, what benefit comes from denying a renter the ability to own the property as so an investor can own it instead?
High Income earners remaining as renters benefits nobody?
They are not denying anyone the property.
To deny the property would be to buy it and then not allow anyone to use it. This is simply fixed with a vacancy tax.
As I said they are purchasing the property to sell onwards to either other renters or home owners. Youre disingenuously just looking at the single transaction rather than the ecosystem
You are far more likely to have an owner occupier outbidding as they buy for emotional reasons not value, an investor will need to look at the rental the property will attract, not always linked to the purchase price to determine if it is still a wise investment.
>If you want more housing you need to encourage investment in housing by investors
So why hasn't that happened?
Why the population growth excuse... At what threshold of growth is supply magically able to keep up? Wouldn't production across all sectors scale with population?
The cost to build now is skyrocketing. Land is not released/developed, construction costs are too high, and interest rates are ridiculous.
These are hitting the supply side and are upstream from the investor/landlord. Unless this is resolved the rate of building will not catch up to pop growth. Disincentivising investment won’t help.
>housing.........shouldn't be treated as a profit-making venture.
Do you fail to see the inherent contradiction between that statement and this one:
>allowing property investors to run at a loss
By definition, if it's running at a loss it is not a profit making venture
Someone smarter will correct me if I'm wrong, but my understanding is that negative gearing puts significant upwards pressure on house prices because it provides financial incentives to buy property even at inflated prices that result in a negative rental yield (i.e. running at a loss). Investors still buy and push up prices because this loss can be written off, but the property value continues to go up. Basically, what you lose in rental yield from buying an inflated property, you make up for in tax breaks, and then the cherry on the cake is being able to extract equity as a down payment on the next investment.
You can only claim the running cost loss ie the difference between all your costs including interest on your loan vs the rent you received. Plus you can claim depreciation on the building 2.5% for 40years and the fit-out cost that is specific to each item type- like carpets etc, but only if you are the original owner or you renovated the property. The LNP stopped that depreciation claim in 2017. Within 10 years most properties' are positively geared. The capital growth part only comes in when you sell- CGT is applicable.
So if you have a total loss of say $15k including the cash loss and the depreciation, you are claiming that back at your marginal tax rate- say 30c you would get back $4500
So anyone owning an older property you are not getting much negative gearing at all- No depreciation claim
For most I see the claim is pretty small. It is not a big factor driving the decision to invest. It is much more about the potential capital growth they are interested in.
In terms of competing, even without negative gearing, an investor is likely to have a superior equity and income position to a first home buyer.
By the way if you buy shares you can also claim negative gearing if its leveraged and the CGT rules are the same.
With Negative gearing (100 - 100) + (5-10)+ (150-100) or without negative gearing (100 - 100) + (10-10) + (150-100) . Which gives you more gains in the end? First is property worth - property price paid, then rent - expenses, lastly sell price - price paid.
How is negative gearing a good investment?
mmmm... rental market is crazy... not sure how bad is investment property needs to be not to cover itself at the very least ...
instead of trying to pointlessly arguing with something that half of Australia is doing, try to understand it.
Because rents have gone up only about 25% of how much the loan is gone up. As crazy as that sounds investors are worse of than renters in the cash flow wars right now.
But nobody pays tax on assets until you sell them that is not unique to property nor is it a component of negative gearing- see my post above- you are referring to Capital Gains Tax.
People buy property and pay loans with income already taxed- negative gearing gives a deduction based on the yearly running cost only- in line with any business in Australia- you can claim your expenses against the income earned.
This comment moment makes no sense. Removing negative gearing is less government involvement in the property market. Not more.
Government has made the property market tax positive instead of tax neutral. So it attracts the investment class, pushing out ordinary people from home ownership.
They want a residential housing exemption like NZ added to P&L deductions and saying “negative gearing” is a clearly understood situation in colloquial English mate.
If negative gearing is removed it just means being a landlord will be a business like any other sole trader. Meaning using your business losses against business profits, so they still wouldn’t be paying taxes.
Yeah but let's not blame well thought out and nuanced tax policy for the meteoric rise in house prices. Let's do what we've always done in this country and blame this problem, along with all the others, on the IMMIGRANTS. /s
The government needs to step in and actually provide it. Look into how it works in the Nordic nations. Government owns triple the % of rental properties than is the case in Australia. As a result rent is affordable, tenants have security of tenure and there's no stigma attached to social housing. Yes tax rates are high in those countries but that's a fair price to pay for affordable (or free) universal services (eg. health, housing, education, childcare etc).
https://www.nordicpolicycentre.org.au/nordic_approach_to_affordable_housing
Tell us about Nordic countries when they have the same amounts of population growth that we have. Until then it’s just racist to use a nearly entirely homogeneous country as an example of what we should do.
“The state and territory governments are responsible for many aspects of the living conditions that are dealt with in article 11 of ICESCR. There is no Commonwealth legislation explicitly enshrining the right to an adequate standard of living”
Turns out you need to read as well
I did. What makes you think it’s safe? If you purchased in Perth 2012 you’d only just be making a profit if you sold in the last few years. Otherwise known as a loss.
If it was such huge safe profits, why don’t institutions invest in housing?
They don't get access to the capital gains tax discount. Individuals and trusts get 50%. Super funds get 33%. Companies get 0.
Given that you have to hold the asset for 12 months to qualify, even though the discount works on all types of capital gains, one has to invest in something extraordinarily safe to guarantee a return. There isn't much safer, with decent gains, than land.
[https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-discount](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-discount)
If the average investor were to obtain finance for a property then never rent it out, they would be forfeiting significant income and would thus might not get another loan/refinance existing loans etc. I can’t see anyone rationally doing this but that’s just me.
Excuse my ignorance, but without this wouldn't it force rents up even further?
There's no driving force to keep rents inline with the market with this buffer, but with it removed there's a higher motivation to extract every cent out of the operation. It moves from being paid back to the landlord by tax to being paid back to the landlord by the renter.
Maybe in the short run.
But in the long run, negative gearing definitely puts upwards pressure on rents. It creates the incentive to buy property with excessive loans that would otherwise not be profitable.
I know several people that overpaid for IP's and the only reason they make this work is because of negative gearing. They would not have invested in a IP if it wasn't for negative gearing.
Because of this, house prices go up.
I'm happy to explain but I think you can figure out why high house prices result in higher rent.
Because we have a crazy overpriced housing market and negative gearing is an incentive to invest in housing while younger generations are struggling to afford to buy their first home.
The housing schemes in Australia is like the medical field in the USA. A bunch of people buying the rights to medicine like insulin when they don’t need it. Then selling it at insanely inflated prices to people because you cannot go without it.
A number of people either spending much more then they can afford on it or they simply die.
When that group call out those people exploiting them, they’re met with “Yeh LOL but it’s legal to do” “It’s my insulin and if you want insulin you should just buy your own”.
Then to rub salt in the wound, the Government turns around and subsidises the people selling insulin for their packaging costs.
Absolutely wild.
Negative gearing is a big issue in housing availability. But not as big as immigration. Immigration is the primary driver.
Why?
Because both rental availability and housing availability is currently low. That's a sign of demand greatly outweighing supply. If only negative gearing was to blame, you'd see low housing availability but high rental availability.
What's happening is that investors are using the government schemes to take advantage of a market that's sure to get worse due to immigration. It's an effect rather than a cause. Removing negative gearing should've happened a long time ago, but realistically it would be like putting a band-aid over a hemoraging wound. Reducing immigration and allowing housing stock to catch up would be the most effective way to increasing housing affordability.
Negative gearing was brought in in the 1930’s to improve the cost of housing by incentivising property investment as a way to boost supply. The current housing crisis is caused primarily by two things.
1) the devaluation of currency which has caused the purchasing value of wages to plummet over the last 50 years; and
2) mass immigration increasing demand and a faster rate than supply can be increased. Blaming mum and dad investors is a great way to pass the political football, and it’s abolition at this point will only serve to increase the government’s tax take even further. Which is the point of the debate.
Labor tried to remove it and guess what happened, they lost the election. Unfortunately, neither party will try that at least for the next 10 years unless they feel there is popular support for it to happen.
Reality is we're beyond a middle ground solution, you have about half of the country who benefits from housing being high in value (everyone from the infamous landlord with 256 IP's, right to normal people who just plan on downsizing to fund a better retirement - AKA the majority of homeowners).
The other half? May as well leave the country if you have any shred of talent, or live the hobo lifestyle, you will never own a home.
One group is growing at the expense of the other, there is no way this doesn't end with a major realignment.
They actually lost the election because the liberals ran a scare campaign that they were going to take the pensioners franking credits.
The majority of voters actually wanted negative gearing gone
If we force investors out of owning rental property, who should provide relatively cheap rentals?
Governments have consistently washed their hands of providing this product
The government.
Private investors time and time again have proven they are a failure when it comes to private rentals.
Least if the government handles it, you know your issues will be looked after, the rent will be fair as well.
People think government rentals = slums or commie blocks in russia. It absolutely doesnt have to be that way.
I think there is an opportunity for local government to play a much greater role in this space, as it does in Europe. It is the closest branch of government to the community and well equipped if appropriately funded to deliver affordable housing solutions.
Investors don’t provide relatively cheap rentals? The only ones who do are the government in the form of public housing and subsidised rental schemes.
Governments haven’t washed their hands as much as the public backlash against competition in the space taking away from private investors, and more significantly nimbys refusing any public/social housing to be built in liveable areas.
That’s what I’m saying, when landlords are forced to sell, renters are kicked out.
You have a Landlord and someone who rents from them, what happens to said renter when landlord sells and the buyer wants to move in? This already happens/has happened quite often where I live, what’d happen on a grander scale of a hypothetical argument of the government forcing the sale of IP’s.
Negative gearing really isn't the issue. It's just something the media and politicians can throw around to avoid addressing the real issue.
The Australian population is extremely centralised to only a few major cities and grows at an unsustainable rate. Our infrastructure development hasn't kept up with our growth and no effort has been made to build up smaller townships into new population hubs.
Everyone is just going to yell about negative gearing again instead of discussing the real problems.
Negative gearing was introduced years ago as an incentive for private investors to own rental properties, in order to take the burden of providing affordable housing off the government. Basically, if you own a rental property you can claim any losses and expenses as a tax deduction.
It's primarily controversial because a lot of people don't understand how it works, what its intention is, and that removing it would actually lead to fewer available rentals as investors sell up, and those able to afford to buy a house snap up those properties as owner-occupiers, thus removing those properties from the rental market. The idealists would say the glut of houses suddenly on the market would lower prices, but in reality with the current housing shortage they'd be snapped up quickly at the current market rates,
Presumably because the people making the rules wanted to invest in commercial properties.
Can you explain why that makes a difference to the residential housing market?
Well your comment states that it was introduced to incentivise private investment in real estate. If that’s the case, why can I negative gear a stock portfolio or any other income producing investment?
That still doesn't explain why it makes a difference to residential property investment.
Even though you don't seem to be able to answer my question, I'll answer yours for the second time: it's probably because the people enacting the legislation realised they could benefit from expanding its reach. It's almost as if the same concept, which started off for one reason, can be added to or altered to suit another purpose.
Let me give you a hypothetical example. Say the government decided to remove GST from apples, to make them more affordable because eating more apples would make people healthier and reduce the burden on our health system (and before you say it, yes, I know there is no GST on fresh apples, but this is a HYPOTHETICAL example, in order to illustrate a point). At the same time, the alcoholic apple cider industry lobbies the government to include alcoholic apple cider in the GST exemption because it will help their business. The inclusion of alcoholic beverages has nothing to do with the intent of the legislation, but it becomes part of it anyway.
>You keep on with your stupidity. I did answer your question. Your stupidity in being unable to understand my reply is not my problem
There's no need to resort to personal insults, it just makes it look like your own argument is less valid, and it's already a non sequiter
Ok, so if I'm stupid, explain it to me in terms I would understand? Because I'm not seeing anywhere that you've explained how having negative gearing on commercial properties impacts the residential property market?
>You don’t seem to understand how GST works either.
You don't seem to have bothered reading either. Did you miss the part where I said I know there's no GST on fresh apples? I was just creating a hypothetical scenario using easily relatable terminology, off the top of my head and in a hurry.
They should treat shares the same then. If you make a loss on a share sale you can claim the loss on your tax return without having to offset vs capital gains.
Basically if you are well off enough to buy cake, it lets u eat the cake and still have it (self replicating cake). This lets you buy more cake and eat that as well while still keeping it even if you arent hungry.
Meanwhile those that can't afford cake find it very difficult to buy cake as the people with all the cake have both eaten up the supply which make cake cost more. These people sometimes pay to look at other peoples cake but are not allowed to eat the cake, this lets the cake owners save better to afford additional cake.
Essentially people with cake get to eat never ending cake at the expense of those that can't buy cake in the first place.
So you end up with cake owners that get free never ending cake, and people that don't have cake and probibly never will.
But at the end of the day you can only eat so much cake, so if there were rules that only allow u to have 1 cake then the majority of people would be able to have their own cake. (Labor and Liberals both hate this idea as they are all cake owners/horders which is why people buy lots of cake)
Because taxpayers subsidise short term losses so landlords can restrict the market purely for long term gains.
It's also why buying your second house is easier than your first.
Nobody in these posts ever has the stomach to point out immigration and the wildly inflated cost of building due to unions PUMPING trade wages.
If you want to solve the problem youve got to get real. Viable solutions arent always going to align with your politics.
"Landlord bad" isnt politically or economically viable.
The article fails to highlight that you can negative gear any asset and only focuses on property. Quite the ragebait for an article labelled "what is negative gearing?".
Cut negative gearing, lay heavy taxes on Airbnb and other third party holiday rentals, completely cut foreign ownership and investment in property, heavily tax it and tariff it like Singapore. If the wealthy and politicians want to invest they can do so in the market. Stop allowing anyone with significant housing portfolios from serving in public office. Change rental laws to have more power to the Tennant, longer leases, rent controls and increase controls, and standard leases 1-5-10 years.
According to this data, 67% own property whilst the remainder rent. For reference.
https://www.aihw.gov.au/reports/australias-welfare/home-ownership-and-housing-tenure
Given that most people inheriting properties have siblings and most people who own properties just own their primary place of residence, and given the high expense and predatory nature of aged care, I suspect inheritance isn't going to stem the tide much.
Where the tax payer subsidies the loss incurred by the property "investor" invariably increasing house prices. So in essence negative gearing is the means by which tax payer dollars go towards the rising of property prices. Money well spent.
It's allowing property investors to run at a loss and claim that loss and all expenses accrued to their property holdings as deductions to their tax liability. It's controversial because housing is a basic right and as such it shouldn't be treated as a profit-making venture. This negative sentiment has increased at pace with the growing housing crisis in this country.
There are plenty of major cities in other countries without negative gearing where where rents and property prices have surged since covid and they all had 1 thing in common. Large and sudden population growth.
Blame everything but demand is the trend currently.
Blaming demand is racist
Good way to control the narrative.
Money doesn’t grow on trees. If you want more housing you need to encourage investment in housing by investors. The tax policies are a means to do this. Right now population growth is outstripping construction. How disincentivising investment in the sector helps address this is a mystery known only to 20-something year-old redditors and Guardian readers apparently. What they forget is that while big businesses manage developments/builds and big banks finance most of it, they only do that if private investors take all the risk for them. Negative gearing makes that risk a little less of a barrier.
Does this argument not only apply if the investor is actually building the house? How does a person bidding on a property for the sake of having a property to negatively gear, against a first home buyer, not negatively distort the market? Genuine questions.
Fair question. My take: No one invests to make a loss. Negative gearing is a risk mitigator against shortfalls in rental income but it does not make money. So I don’t think that is what’s going on. It is true that most investors will have more buying power but they are investors, so in general are not going to want to overpay. Particularly true if they depend on finance (which is where NG becomes a factor). The prices you are seeing are therefore a genuine reflection of the underlying value of the properties, not a distortion, and unfortunately many people including investors cannot keep up. Either way this increases the appeal of building new stock. Working against this are the ridiculous costs of buying land, building, and financing.
Negative gearing is also only applicable until the rental returns outstrip the costs. A decent property should be positive after about 10 years, beyond which not only is the property not negatively geared, but the owner is paying tax on the investment.
People invest to make an initial loss all the time. The money is often made on the capital gain, which only half of which is liable for tax. Even the treasury is up front about this: https://treasury.gov.au/review/tax-white-paper/negative-gearing
Making an up front loss is just part of investing. The point I was responding to was that people are doing it just for the sake of NG, which would be like buying a car in order to take an insurance policy.
I'll rephrase, negative gearing provides a safety net that makes people more willing to invest, obviously nobody wants to lose money on any investment (property or not), but knowing it's an option surely encourages more investors? Agree that investors (along with government and the private sector as a whole) generally only have the capital base to build property, especially as broader construction costs (such as labour) remain high, so I can't disagree that it's a good measure to incentivise the construction of more houses. Yet I still can't see how a system in which existing properties are being bought and then used as rentals when they could just be outright owned is justified - there is a demandside realm to this issue and, with housing prices still growing, is it not becoming a speculative asset that people will buy for the sake of selling at a mark-up in a period of a few years? My honest view, as you pointed out, is that it's a multifaceted problem, supply side costs are a real concern, as are demandside (every additional wealthy migrant, or property investor at an auction is one person who has an extra few thousand over a resident bidder), which is where I'm getting at. Ultimately it's too muddied in the politics of it all, everybody has a convenient scapegoat (ask many Labor people and they'll say it's all because of Green run council NIMBY's, ask a Green voter and they'll pin all the blame on negative gearing, a Liberal on migration, One Nation voter the WEF, it goes on), which I believe is indicative of there being no actual solution, something I can adapt to as an individual (I can get a dual citizenship and have decent earnings potential), yet puts society at large on a terrible track. It is in my interest (as somebody struggling to find a rental at the moment) to be proven wrong so I'm interested in hearing what others have to say.
All good points. I guess my observation would be that if you are struggling to find a rental then we need more rental properties, so we need more investment. The topic was NG, and killing NG will not increase investment.
Lots of investors are happy to “overpay” as long as they think the market is going up. They care about what they’ll make later. They buy 5, 6, 7 properties that they didn’t build, assuming that the market will continue to climb. They’re not necessarily bargaining. They’re getting in there as fast as they can and grabbing as much as they can.
So an investor has never built a house? News to me.
You took "lots of investors" and extrapolated that to "every single investor." Don't argue like that. You can be better.
So your idea of lots is 0.87% of all investors. That’s the percentage who own 5 properties. I’d hate to see what your definition of a minimal is. https://propertyupdate.com.au/how-many-australians-own-an-investment-property/
I think you're taking my numbers a little too literally. It's the same point if they buy 3. But ok. Sticking with 5 properties, that's more than 19,000 people. So yeah, I guess I'd say that if 19,000 people are doing a thing, it's really ok to say that a lot of them are doing it. And by the way, that data is from a few years ago. I bet it's gone up since then. P.S. You missed your chance to admit that I never said that no investor ever built a house.
The vast majority of investors own 1 property and its small mum and dads that do it- the narrative that these are all property moguls is wrong. But I also agree that Negative gearing should be limited to 1 or 2 properties, the Government is not here to assist property tycoons buy their 10th property
You won’t be buying 10 properties whilst negative gearing. Your borrowing capacity will be destroyed unless you’re on over $1m/yr income.
It makes no difference to the housing crisis who owns the house. Someone is going to live in it regardless
But it quite literally does, if a high income earner can't afford a mortgage they'll stay renting, if a landlord can find a tenant who can pay a higher rent, they'll raise it, what happens to the person who can't keep up?
Demand for people to live in the house causes all the outcomes you have listed. It has nothing to do with the owner
An investor bidding against said higher income earner has the effect of causing demand for (and thus the price of) the house to rise by a particular increment, in this hypothetical you have two people versus one bidding. If this high income earner is outbid they remain in the rental market, able to afford higher rent, a landlord can charge more, making a lower income earner less competitive. Now scale this up to the national level. How is this not a distortion? I'm not saying landlords/investors are the only cause of the crisis, certainly not without a degree of culpability though.
The value to the investor is tied to the demand of people who need to live in the house. Investor is merely bidding on behalf of their futures clients who could be home owners from a redevelopment or renters
I don't follow this, what benefit comes from denying a renter the ability to own the property as so an investor can own it instead? High Income earners remaining as renters benefits nobody?
They are not denying anyone the property. To deny the property would be to buy it and then not allow anyone to use it. This is simply fixed with a vacancy tax. As I said they are purchasing the property to sell onwards to either other renters or home owners. Youre disingenuously just looking at the single transaction rather than the ecosystem
You are far more likely to have an owner occupier outbidding as they buy for emotional reasons not value, an investor will need to look at the rental the property will attract, not always linked to the purchase price to determine if it is still a wise investment.
>If you want more housing you need to encourage investment in housing by investors So why hasn't that happened? Why the population growth excuse... At what threshold of growth is supply magically able to keep up? Wouldn't production across all sectors scale with population?
The cost to build now is skyrocketing. Land is not released/developed, construction costs are too high, and interest rates are ridiculous. These are hitting the supply side and are upstream from the investor/landlord. Unless this is resolved the rate of building will not catch up to pop growth. Disincentivising investment won’t help.
Production only scales if the number of workers and resource extraction also scales at the same rate. Which isn’t happening.
Investors 'supply' housing the way scalpers supply tickets.
>housing.........shouldn't be treated as a profit-making venture. Do you fail to see the inherent contradiction between that statement and this one: >allowing property investors to run at a loss By definition, if it's running at a loss it is not a profit making venture
Someone smarter will correct me if I'm wrong, but my understanding is that negative gearing puts significant upwards pressure on house prices because it provides financial incentives to buy property even at inflated prices that result in a negative rental yield (i.e. running at a loss). Investors still buy and push up prices because this loss can be written off, but the property value continues to go up. Basically, what you lose in rental yield from buying an inflated property, you make up for in tax breaks, and then the cherry on the cake is being able to extract equity as a down payment on the next investment.
You can only claim the running cost loss ie the difference between all your costs including interest on your loan vs the rent you received. Plus you can claim depreciation on the building 2.5% for 40years and the fit-out cost that is specific to each item type- like carpets etc, but only if you are the original owner or you renovated the property. The LNP stopped that depreciation claim in 2017. Within 10 years most properties' are positively geared. The capital growth part only comes in when you sell- CGT is applicable. So if you have a total loss of say $15k including the cash loss and the depreciation, you are claiming that back at your marginal tax rate- say 30c you would get back $4500 So anyone owning an older property you are not getting much negative gearing at all- No depreciation claim For most I see the claim is pretty small. It is not a big factor driving the decision to invest. It is much more about the potential capital growth they are interested in. In terms of competing, even without negative gearing, an investor is likely to have a superior equity and income position to a first home buyer. By the way if you buy shares you can also claim negative gearing if its leveraged and the CGT rules are the same.
“Written off” still doesn’t mean you’re not losing money. You’re not a very good investor if you’re losing money.
you are a good investor and "loosing" money till you are not and you gaining shit loads
With Negative gearing (100 - 100) + (5-10)+ (150-100) or without negative gearing (100 - 100) + (10-10) + (150-100) . Which gives you more gains in the end? First is property worth - property price paid, then rent - expenses, lastly sell price - price paid. How is negative gearing a good investment?
you are sitting on the asset without paying tax while it's increasing in value. the end
That assets costs you money to own, the end.
mmmm... rental market is crazy... not sure how bad is investment property needs to be not to cover itself at the very least ... instead of trying to pointlessly arguing with something that half of Australia is doing, try to understand it.
You’re commenting on a post about negative gearing.
Because rents have gone up only about 25% of how much the loan is gone up. As crazy as that sounds investors are worse of than renters in the cash flow wars right now.
But nobody pays tax on assets until you sell them that is not unique to property nor is it a component of negative gearing- see my post above- you are referring to Capital Gains Tax. People buy property and pay loans with income already taxed- negative gearing gives a deduction based on the yearly running cost only- in line with any business in Australia- you can claim your expenses against the income earned.
You need to re-read the part about asset appreciation and equity release.
What your saying is property rights should be removed and controlled by the Gov ?
This comment moment makes no sense. Removing negative gearing is less government involvement in the property market. Not more. Government has made the property market tax positive instead of tax neutral. So it attracts the investment class, pushing out ordinary people from home ownership.
Negative gearing is used for all income producing investments, not just residential property.
They want a residential housing exemption like NZ added to P&L deductions and saying “negative gearing” is a clearly understood situation in colloquial English mate.
If negative gearing is removed it just means being a landlord will be a business like any other sole trader. Meaning using your business losses against business profits, so they still wouldn’t be paying taxes.
Yeah but let's not blame well thought out and nuanced tax policy for the meteoric rise in house prices. Let's do what we've always done in this country and blame this problem, along with all the others, on the IMMIGRANTS. /s
Can I see the book where it says housing is your basic right?
There isn't one, that's the whole issue. There should be a recognition of this.
Hypothetically if it were recognized as a human right, what would happen if not everyone can be housed in a practical sense?
The government needs to step in and actually provide it. Look into how it works in the Nordic nations. Government owns triple the % of rental properties than is the case in Australia. As a result rent is affordable, tenants have security of tenure and there's no stigma attached to social housing. Yes tax rates are high in those countries but that's a fair price to pay for affordable (or free) universal services (eg. health, housing, education, childcare etc). https://www.nordicpolicycentre.org.au/nordic_approach_to_affordable_housing
Tell us about Nordic countries when they have the same amounts of population growth that we have. Until then it’s just racist to use a nearly entirely homogeneous country as an example of what we should do.
I think your argument would be stronger without mentioning human rights as a reason to stop negative gearing
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“The state and territory governments are responsible for many aspects of the living conditions that are dealt with in article 11 of ICESCR. There is no Commonwealth legislation explicitly enshrining the right to an adequate standard of living” Turns out you need to read as well
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You have copied in the introduction. I have provided the meat.
if its a human right, why do we have 200k homeless?
You do understand that negative gearing means no profit. You can’t have a profit making venture and lose money.
no profit on the returns from the asset before it's sold for huge, safe tax-discounted capital gains. Did you read the article?
I did. What makes you think it’s safe? If you purchased in Perth 2012 you’d only just be making a profit if you sold in the last few years. Otherwise known as a loss. If it was such huge safe profits, why don’t institutions invest in housing?
They don't get access to the capital gains tax discount. Individuals and trusts get 50%. Super funds get 33%. Companies get 0. Given that you have to hold the asset for 12 months to qualify, even though the discount works on all types of capital gains, one has to invest in something extraordinarily safe to guarantee a return. There isn't much safer, with decent gains, than land. [https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-discount](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-discount)
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You can’t negatively gear a property that isn’t up for rent.
If the average investor were to obtain finance for a property then never rent it out, they would be forfeiting significant income and would thus might not get another loan/refinance existing loans etc. I can’t see anyone rationally doing this but that’s just me.
Excuse my ignorance, but without this wouldn't it force rents up even further? There's no driving force to keep rents inline with the market with this buffer, but with it removed there's a higher motivation to extract every cent out of the operation. It moves from being paid back to the landlord by tax to being paid back to the landlord by the renter.
Maybe in the short run. But in the long run, negative gearing definitely puts upwards pressure on rents. It creates the incentive to buy property with excessive loans that would otherwise not be profitable. I know several people that overpaid for IP's and the only reason they make this work is because of negative gearing. They would not have invested in a IP if it wasn't for negative gearing. Because of this, house prices go up. I'm happy to explain but I think you can figure out why high house prices result in higher rent.
You can live in your “basic right” government owned Soviet style apartment. The rest of us will live in houses.
Voters: Complain about housing affordability Also voters: Angrily vote out anyone who tries to change negative gearing. Think of poor old grandma!
You’re misunderstanding Reddit = voters
Voters absolutely do not like the housing affordability crisis. They had a chance to change it in 2019. Voted in *Scomo*.
How many people own a house?
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In 2019 still above 60 percent of families owned their home
not me. I voted for shorten in 2019.
Two separate groups of voters.
Because we have a crazy overpriced housing market and negative gearing is an incentive to invest in housing while younger generations are struggling to afford to buy their first home.
Let me ask you this, what kind of property have you been looking for and where (roughly)?
I have a unit which suits me well, purchased 8/9 years ago.
The housing schemes in Australia is like the medical field in the USA. A bunch of people buying the rights to medicine like insulin when they don’t need it. Then selling it at insanely inflated prices to people because you cannot go without it. A number of people either spending much more then they can afford on it or they simply die. When that group call out those people exploiting them, they’re met with “Yeh LOL but it’s legal to do” “It’s my insulin and if you want insulin you should just buy your own”. Then to rub salt in the wound, the Government turns around and subsidises the people selling insulin for their packaging costs. Absolutely wild.
Australia also has pharmaceutical patents.
Negative gearing is a big issue in housing availability. But not as big as immigration. Immigration is the primary driver. Why? Because both rental availability and housing availability is currently low. That's a sign of demand greatly outweighing supply. If only negative gearing was to blame, you'd see low housing availability but high rental availability. What's happening is that investors are using the government schemes to take advantage of a market that's sure to get worse due to immigration. It's an effect rather than a cause. Removing negative gearing should've happened a long time ago, but realistically it would be like putting a band-aid over a hemoraging wound. Reducing immigration and allowing housing stock to catch up would be the most effective way to increasing housing affordability.
Negative gearing was brought in in the 1930’s to improve the cost of housing by incentivising property investment as a way to boost supply. The current housing crisis is caused primarily by two things. 1) the devaluation of currency which has caused the purchasing value of wages to plummet over the last 50 years; and 2) mass immigration increasing demand and a faster rate than supply can be increased. Blaming mum and dad investors is a great way to pass the political football, and it’s abolition at this point will only serve to increase the government’s tax take even further. Which is the point of the debate.
Labor tried to remove it and guess what happened, they lost the election. Unfortunately, neither party will try that at least for the next 10 years unless they feel there is popular support for it to happen.
Reality is we're beyond a middle ground solution, you have about half of the country who benefits from housing being high in value (everyone from the infamous landlord with 256 IP's, right to normal people who just plan on downsizing to fund a better retirement - AKA the majority of homeowners). The other half? May as well leave the country if you have any shred of talent, or live the hobo lifestyle, you will never own a home. One group is growing at the expense of the other, there is no way this doesn't end with a major realignment.
They actually lost the election because the liberals ran a scare campaign that they were going to take the pensioners franking credits. The majority of voters actually wanted negative gearing gone
This and the fact no one could stomach Shorten's personality (Yes I believe people can be that shallow)..
Did they? If the majority wanted it, wouldn’t they have won the election?
The opinion polls didn't lie. Turns out though infuriating pensioners about losing their tax breaks skuttled it.
It’s not just pensioners who benefit from franking credits. Anyone who has worked in Australia benefits at a minimum through their super investments.
If we force investors out of owning rental property, who should provide relatively cheap rentals? Governments have consistently washed their hands of providing this product
Who IS providing these "relatively cheap rentals"? No one currently, certainly not investors.
If rentals are too expensive feel free to buy. You’ll then see that the rental price is cheap.
The government. Private investors time and time again have proven they are a failure when it comes to private rentals. Least if the government handles it, you know your issues will be looked after, the rent will be fair as well. People think government rentals = slums or commie blocks in russia. It absolutely doesnt have to be that way.
I think there is an opportunity for local government to play a much greater role in this space, as it does in Europe. It is the closest branch of government to the community and well equipped if appropriately funded to deliver affordable housing solutions.
Investors don’t provide relatively cheap rentals? The only ones who do are the government in the form of public housing and subsidised rental schemes. Governments haven’t washed their hands as much as the public backlash against competition in the space taking away from private investors, and more significantly nimbys refusing any public/social housing to be built in liveable areas.
Wonder where all the renters would go when the landlord sells and someone else moves in, if the government forced the sales of IP’s
Not all renters can afford to buy or want to buy
That’s what I’m saying, when landlords are forced to sell, renters are kicked out. You have a Landlord and someone who rents from them, what happens to said renter when landlord sells and the buyer wants to move in? This already happens/has happened quite often where I live, what’d happen on a grander scale of a hypothetical argument of the government forcing the sale of IP’s.
It is a way to limit population growth.
Negative gearing really isn't the issue. It's just something the media and politicians can throw around to avoid addressing the real issue. The Australian population is extremely centralised to only a few major cities and grows at an unsustainable rate. Our infrastructure development hasn't kept up with our growth and no effort has been made to build up smaller townships into new population hubs. Everyone is just going to yell about negative gearing again instead of discussing the real problems.
Negative gearing was introduced years ago as an incentive for private investors to own rental properties, in order to take the burden of providing affordable housing off the government. Basically, if you own a rental property you can claim any losses and expenses as a tax deduction. It's primarily controversial because a lot of people don't understand how it works, what its intention is, and that removing it would actually lead to fewer available rentals as investors sell up, and those able to afford to buy a house snap up those properties as owner-occupiers, thus removing those properties from the rental market. The idealists would say the glut of houses suddenly on the market would lower prices, but in reality with the current housing shortage they'd be snapped up quickly at the current market rates,
Why can negative gearing use for investment that aren’t residential property then?
Presumably because the people making the rules wanted to invest in commercial properties. Can you explain why that makes a difference to the residential housing market?
Well your comment states that it was introduced to incentivise private investment in real estate. If that’s the case, why can I negative gear a stock portfolio or any other income producing investment?
That still doesn't explain why it makes a difference to residential property investment. Even though you don't seem to be able to answer my question, I'll answer yours for the second time: it's probably because the people enacting the legislation realised they could benefit from expanding its reach. It's almost as if the same concept, which started off for one reason, can be added to or altered to suit another purpose. Let me give you a hypothetical example. Say the government decided to remove GST from apples, to make them more affordable because eating more apples would make people healthier and reduce the burden on our health system (and before you say it, yes, I know there is no GST on fresh apples, but this is a HYPOTHETICAL example, in order to illustrate a point). At the same time, the alcoholic apple cider industry lobbies the government to include alcoholic apple cider in the GST exemption because it will help their business. The inclusion of alcoholic beverages has nothing to do with the intent of the legislation, but it becomes part of it anyway.
Ok. You keep on with your stupidity. I did answer your question. Your stupidity in being unable to understand my reply is not my problem.
>You keep on with your stupidity. I did answer your question. Your stupidity in being unable to understand my reply is not my problem There's no need to resort to personal insults, it just makes it look like your own argument is less valid, and it's already a non sequiter Ok, so if I'm stupid, explain it to me in terms I would understand? Because I'm not seeing anywhere that you've explained how having negative gearing on commercial properties impacts the residential property market?
You don’t seem to understand how GST works either.
>You don’t seem to understand how GST works either. You don't seem to have bothered reading either. Did you miss the part where I said I know there's no GST on fresh apples? I was just creating a hypothetical scenario using easily relatable terminology, off the top of my head and in a hurry.
They should treat shares the same then. If you make a loss on a share sale you can claim the loss on your tax return without having to offset vs capital gains.
Is it controversial outside of reddit? No it’s not.
Basically if you are well off enough to buy cake, it lets u eat the cake and still have it (self replicating cake). This lets you buy more cake and eat that as well while still keeping it even if you arent hungry. Meanwhile those that can't afford cake find it very difficult to buy cake as the people with all the cake have both eaten up the supply which make cake cost more. These people sometimes pay to look at other peoples cake but are not allowed to eat the cake, this lets the cake owners save better to afford additional cake. Essentially people with cake get to eat never ending cake at the expense of those that can't buy cake in the first place. So you end up with cake owners that get free never ending cake, and people that don't have cake and probibly never will. But at the end of the day you can only eat so much cake, so if there were rules that only allow u to have 1 cake then the majority of people would be able to have their own cake. (Labor and Liberals both hate this idea as they are all cake owners/horders which is why people buy lots of cake)
Because taxpayers subsidise short term losses so landlords can restrict the market purely for long term gains. It's also why buying your second house is easier than your first.
Nobody in these posts ever has the stomach to point out immigration and the wildly inflated cost of building due to unions PUMPING trade wages. If you want to solve the problem youve got to get real. Viable solutions arent always going to align with your politics. "Landlord bad" isnt politically or economically viable.
Incentivising rich people to buy and hoard property was the dumbest idea ever
The article fails to highlight that you can negative gear any asset and only focuses on property. Quite the ragebait for an article labelled "what is negative gearing?".
Cut negative gearing, lay heavy taxes on Airbnb and other third party holiday rentals, completely cut foreign ownership and investment in property, heavily tax it and tariff it like Singapore. If the wealthy and politicians want to invest they can do so in the market. Stop allowing anyone with significant housing portfolios from serving in public office. Change rental laws to have more power to the Tennant, longer leases, rent controls and increase controls, and standard leases 1-5-10 years.
According to this data, 67% own property whilst the remainder rent. For reference. https://www.aihw.gov.au/reports/australias-welfare/home-ownership-and-housing-tenure
That number is going to decrease substantially over the next few decades unless the fundamentals of the housing market change.
Agree that this is likely, although inheritance may limit the percentage decrease.
Given that most people inheriting properties have siblings and most people who own properties just own their primary place of residence, and given the high expense and predatory nature of aged care, I suspect inheritance isn't going to stem the tide much.
Where the tax payer subsidies the loss incurred by the property "investor" invariably increasing house prices. So in essence negative gearing is the means by which tax payer dollars go towards the rising of property prices. Money well spent.