Negative Gearing

[PCH (Paul)]

I'm no expert, but for most mum and dad type investors, isn't the amount of tax they can 'not pay' limited to their earnings anyway?

What I'm saying is that just one investment property would soak up most of whatever benefit they gain from negative gearing.

There wouldn't then be any further gain thru subsequent properties.

Of course, if you earn large and pay heaps of tax, then the benefits would extend into second and third properties - but not for mere mortals surely?

Originally Posted by zenith

Having funded the system for many years through renting, working and paying taxes, and then buying a small, old un-renovated house at an exorbitant price, it would be a real shame if this wealth vehicle is denied to me when I could make use of it. Given that I am forced to forgo a significant part of my income (Superannuation) but am still required to fun the pension scheme, and that I did not have access to free tertiary education or health care, it would be unfair if I could not take advantage of this illogical greed based system that has destroyed housing in this country. Let it be for your first investment property, perhaps no negative gearing for your third, fourth, fifth properties...If only I could tax deduct or salary sacrifice a new Takahashi.

[rrussell1962]

Jen, MIRAS was abolished in the UK in the 2000 budget. Pity really, it was a good scheme for home buyers and worked well. I recall at some point a couple could each claim the 30,000 i.e. pool the MIRAS allowance, can't really remember though it was a long time ago! Occasionally the idea gets floated here.

[casstony]

I'd like to 'lose' $150,000 off the inflated value of my house so that my kids can afford to buy a house at the long term average of 3 to 4 times average earnings. Wishing to maintain the current housing bubble is to be either ignorant or selfish, though it certainly makes the bankers happy.

[rrussell1962]

Well, yes Tony, your post certainly raises the issue as to whether high house prices cost us more in interest payments over a, say, 25 year mortgage than we will ever recoup if and when the house is sold. Not to mention the difficulties it causes for people that want to buy a house. Interestingly enough an additional loan of $150,000 over 25 years will cost around $150,000 in additional interest at 8% - which is a reasonable long term interest rate. That's a very quick calculation, is somebody wants to use a mortgage calculator tool to get a better answer then please correct me if I am wide of the mark.

[jenchris (Jennifer)]

Housing bubbles exist in urban centres. They don't exist in Ormeu where I live - halfway between Bris and Gold coast.
My house is quite inexpensive for an acreage (1.25 acres) 3 bed of 35 squares.
In town I wouldn't get a 2 bed flat.
So why does everyone insist in living in town?
If Sydney is too expensive, get a house somewhere else.(and maybe a job too)
Decentralising isn't a bad thing. While they're at it they should stagger working hours too and that would make it easier to commute further.

[The Mekon (John Briggs)]

Originally Posted by glend

Get rid of negative gearing, its an artifact of the past that is being exploited by investors which keeps an artificial premium on property prices and is self perpetuating among self managed super funds. Greed is not good. It is keeping an entire generation of Australians from gettng their first home as wealthy older people use equity to build portfolios of properties far beyond what woukd be considered necessaar for a comfirtabke retirement.

A good interim solution would be to ban negative gearing for any investor that already has one investment property negatively geared - this will prevent cascading negatve gearing. They can keep the single negatively geaared property but lose an tax advanrage on subsequent properties.

There also needs to be a careful look at the rules that apply to self-manaded superfunds and their ability to borrow for investment purposes.

I could not agree more.

[mithrandir (Andrew)]

Originally Posted by casstony

I'd like to 'lose' $150,000 off the inflated value of my house so that my kids can afford to buy a house at the long term average of 3 to 4 times average earnings. Wishing to maintain the current housing bubble is to be either ignorant or selfish, though it certainly makes the bankers happy.

You obviously don't live in Sydney. For 3-4 times average earnings in most suburbs you can't buy a doghouse.

I'd have less of an issue with negative gearing if it only applied to new construction.

[Stardrifter_WA]

It all comes down to supply and demand. We are not building enough excess housing stocks to drive down prices, and that isn't entirely down to Government. Demand for housing is high, thus pushing up property prices. Developers much prefer it this way, it seems. Government policies influences this in negative and positive ways. Simply, there is no easy answer. We have become victims of our own success, it seems.

I live alone in a four bed, two bath home, on a large block and would really like to downsize, but in doing so, I have to pay stamp duty again on the new property. Stamp duty is quite outrageous and so much so, that it isn't worth downsizing. Any advantage I have I lose it tax.

So, I stay put in a family home. I know four other people in the same situation, who live alone, taking up family homes that would be better off made available for a family.

It matters not which way you go.......you get screwed by taxes!

I have seriously considered selling up and retiring to Thailand. I could live like a prince there with the proceeds from this house. I lived there for a short while in 2005. The only thing that puts me off....its too cloudy!

Cheers Peter

[jenchris (Jennifer)]

Rent it out and use the rent to rent a smaller property

[Kunama]

I think the real problem with housing affordability these days for young people is that they have unrealistic expectations about how much house you need.

Seems that everyone wants a four bedroom with ensuite, study, double garage under the roofline etc etc. Perhaps if people were a bit more realistic about what they really can afford, they would not be in debt up to the eyeballs.

I have had buyers tell me that they could not fit their family into a 3 br house.
I grew up in a 3 br house with 8 siblings.

As for negative gearing, without the tax benefits available, the true cost of owning an investment property would have to be paid for by the tenant. I certainly don't want my properties making me poorer.

Housing affordability in Sydney is not within the grasp of many, but as far as I know there is no law that mandates you have to live there

[Kunama]

Originally Posted by jenchris

Rent it out and use the rent to rent a smaller property

Problem with that is that the rent is deemed to be income and the rent you pay out cannot be claimed against that income..........

[Kunama]

I know of a very affordable housing solution on top of the mountain at Buderim on the beautiful Sunshine Coast ...... in fact I am selling it at a substantial loss, but after 10 weeks no buyers have come forth......

Unfortunately I own it outright so cannot claim interest costs against the rental income,

[Stardrifter_WA]

Originally Posted by Kunama

Problem with that is that the rent is deemed to be income and the rent you pay out cannot be claimed against that income..........

True that, as I already considered that. In fact, if I rented the house and went and lived in Thailand, I wouldn't pay any income tax, as I would be under the threshold. However, if I do that and later sell, I will pay capital gains tax, which I believe, but haven't actually looked into yet, is 50%.

You get screwed whichever way you go.

[Stardrifter_WA]

I was talking to someone that is getting a house built and apparently bricklayers are in short supply and are getting up to $2 per brick. This might account for some of the cost of new housing...high wages.

[Kunama]

Originally Posted by Stardrifter_WA

I was talking to someone that is getting a house built and apparently bricklayers are in short supply and are getting up to $2 per brick. This might account for some of the cost of new housing...high wages.

The reason for that is that for the past 20 years everyone has been building with materials other than brick and thus many brickies have left the trade as they could not get work. Their work was replaced with fibre sheeting or colour bond clad houses or besser block monstrosities rendered over.

Now that architects are bringing brickwork back into their designs, the reduced number of tradesmen brickies can name their own price. You only need to look at any house built from 1995 to 2010 and see how little face brick surface is visible.

[casstony]

The primary cause of high house prices is the low cost of money. Falling interest rates, first home buyers grants and negative gearing make it easier to buy a more expensive house so prices go up.

http://www.macrobusiness.com.au/2013...operty-values/

"Despite the best efforts of the National Housing Supply Council (NHSC) and the FIRE sector to spruik a housing shortage, the long-term trends show dwelling growth has consistently outpaced population growth since WW2"

[rat156]

Originally Posted by Kunama

I think the real problem with housing affordability these days for young people is that they have unrealistic expectations about how much house you need.

Seems that everyone wants a four bedroom with ensuite, study, double garage under the roofline etc etc. Perhaps if people were a bit more realistic about what they really can afford, they would not be in debt up to the eyeballs.

Couldn't agree more.

There are a few people at work who whinge and complain when I tell them that we paid $75000 for our house and land back in 1987. They tell me that they are all looking at probably ten times that much to get into a home.

But...
Their home is in a relatively inner suburb in Melbourne, mine is in Werribee (which in 1987 was the sticks).
Their home is four bed, two bath, double garage, multiple living spaces etc. Mine was (it's now larger) a 10 Sq three bed BV single bath, bugger all else.
Even the new homes around here are selling for $500k, but they are twice the size (at least) of our first home with all the mod cons. We had a concrete slab floor and sheets for window coverings for at least a year.

And...
Interest rates were 18.5%!!!!!!

And...
You had to make an appointment with the bank manager and prove you could afford to repay the loan and still eat!

And...
We had to lick road clean wit' tongue

So now I have an investment property (which my mother in law lives in) and I have it negatively geared to the max. We bought the property (similar in size to our first home and perfect for the 92YO MIL) for $200k about 10 years ago, housing in the area is still similar in prices.

Cheers
Stuart

[sn1987a (Barry)]

you were lucky!, in 1987 we used to dream of a house that cost $75000 all we could afford was $64000 3 and 1 in Rockingham the arse end of the world. Still here

[rat156]

Originally Posted by sn1987a

you were lucky!, in 1987 we used to dream of a house that cost $75000 all we could afford was $64000 3 and 1 in Rockingham the arse end of the world. Still here

Yeah we had about $10k in a deposit, so we went upmarket!

When we got back from our honeymoon (in Tassie) we had about $100 in the bank, the wages of both of us barely covered the mortgage, we ate cheaply, then the interest rates went up to 18.5% (they were 17.5% when we started out) and the bank increased the loan period because we couldn't afford the higher payments.

Interestingly, we are still in the house as well, but there are other reasons for that.

Cheers
Stuart

[Kunama]

Originally Posted by rat156

Yeah we had about $10k in a deposit, .........

Cheers
Stuart

You had a $10K deposit ...... you capitalist ( I worked 15 hour days 7 days a week in 1987 to make ends meet )