Six ways to fix Australia's finances without cuts

[Astro_Bot]

Originally Posted by tlgerdes

... due to drop in supply ...

There'd be no drop in supply, all other things being equal - it's the same number of people and the same number of properties/beds - just a conversion (to what degree is arguable) from renters to owners.

One argument used against changes to negative gearing is that it would reduce stimulation of new residential construction, but I believe it's been shown that other factors are overwhelmingly more important, such as interest rates and land release. Besides, there are already "pointed" distortions in residential property markets such as foreign investors being limited to newly-constructed dwellings, so I don't see an issue with extending that to domestic investors (i.e. not owner occupiers). There could also be some small financial concession (e.g. halving or waiving stamp duty) if-and-only-if rent is pegged at some government-recommended level for a fixed period ... or something like that (there's already something like that in NSW, IIRC ... "affordable rent scheme"?). The main point is negative gearing is a sledgehammer where a scalpel is required.

[Stardrifter_WA]

Originally Posted by Astro_Bot

There'd be no drop in supply, all other things being equal - it's the same number of people and the same number of properties/beds - just a conversion (to what degree is arguable) from renters to owners.

Not exactly true Astro Bot, although I agree that it is currently the case.

The population projections for Australia are staggering. The ABS shows that Australia's population is projected to reach, on current trends, 46 million by 2075.

House ownership (owned or buying) in Australia is currently around 70% of the population. Assuming that current trends remain the same, which it won't (due to housing affordability), that will mean that 30% of the projected growth will not be able to buy their own home. That is a staggering extra 7 million (around 14 million in total, including those that currently rent) people will require either fully subsided government housing or privately provided rental accommodation.

If government remove negative gearing, it will mean one of three things, I think.

Either the government has to directly provide the housing, at a tremendous cost, including the maintenance cost of these properties (which is much more than what they are paying for negative gearing), or give incentives for private investors to provide this housing, through negative gearing or some other form.

The third alternative, which is the more likely, will be to jack up rents to cover the full cost of buying an investment property. And don't forget, you still have to factor in the interest costs, as that will also be passed on to the tenant.

If this percentage of people cannot afford to buy their own home, then they certainly won't be able to pay rent.

Unfortunately, as I see it, it is a viscous circle. The government will have to pay, one way or the other, so it comes down to what is cheapest. Currently, in helping people create wealth, makes the nation wealthier as a whole. Unfortunately, there will always be losers.

Whether we, or the government, like it or not, they are going to help people create wealth. The only other alternative is to end up a poor, third world like, country, unless we just end up with a dictatorship.

Hockey may be right when he says the 'age of entitlement' is over, however, history shows us that never ends up being pretty.

[Astro_Bot]

You completely misunderstand me, Pete, so I'll make it clearer: At any given point in time, "it's the same number of people and the same number of properties/beds".

Property investors mostly buy existing properties (as do owner occupiers). Whilst negative gearing is a sledgehammer that supports enhanced wealth creation for investors regardless of the type of property, we want to increase affordability of whatever stock there is for owner-occupiers. If any investment re-direction is going to occur, IMHO, we want to direct investment purchasing towards new construction (and, yes, I realise land release, zoning and corresponding infastructure investments are vital parts of that solution). This requires more of a "scalpel" approach to policy.

Although I would have thought it goes without saying, population growth is a factor that affects demand, not supply.

I'd like to address a few of your other points, in both posts, but I'm afraid they're layed out in such a way that I can't follow your argument. Perhaps it's for the best, as I should let others have their say.

----------

If negative gearing were to be removed, I agree that a step change could be quite harmful. It would need to be carefully phased-in, as others have suggested.

Here's a related question (to which I don't know the answer):

Do all those in favour of retaining negative gearing own* an investment property, have a plan to purchase one, or otherwise benefit from keeping property prices high (e.g. part of their retirement funding will come from a property sale**)?

* Or through a family member, property trust, etc.
** Keep in mind, people who trade a property on moving (sell one, buy another) are fairly well immunised against price movements, except for "downsizers" who may convert some equity to other assets or cash.

[multiweb (Marc)]

There's no big secret about managing your finance. Don't get in a debt you can't afford to cover. Save your money over time to secure a home of the size you can afford then build on that later. If you want health exercise and eat reasonably. If you want to invest don't borrow the money. If you want to maintain your life standard in retirement do it yourself with a SMSF. Look after yourself. It's your responsibility, not the government's. We are "the system". Spend the money you save, don't expect a hand over.

[Stardrifter_WA]

Originally Posted by Astro_Bot

You completely misunderstand me, Pete, so I'll make it clearer: At any given point in time, "it's the same number of people and the same number of properties/beds".

Property investors mostly buy existing properties (as do owner occupiers). Whilst negative gearing is a sledgehammer that supports enhanced wealth creation for investors regardless of the type of property, we want to increase affordability of whatever stock there is for owner-occupiers. If any investment re-direction is going to occur, IMHO, we want to direct investment purchasing towards new construction (and, yes, I realise land release, zoning and corresponding infastructure investments are vital parts of that solution). This requires more of a "scalpel" approach to policy.

Although I would have thought it goes without saying, population growth is a factor that affects demand, not supply.

I'd like to address a few of your other points, in both posts, but I'm afraid they're layed out in such a way that I can't follow your argument. Perhaps it's for the best, as I should let others have their say.

----------

If negative gearing were to be removed, I agree that a step change could be quite harmful. It would need to be carefully phased-in, as others have suggested.

Here's a related question (to which I don't know the answer):

Do all those in favour of retaining negative gearing own* an investment property, have a plan to purchase one, or otherwise benefit from keeping property prices high (e.g. part of their retirement funding will come from a property sale**)?

* Or through a family member, property trust, etc.
** Keep in mind, people who trade a property on moving (sell one, buy another) are fairly well immunised against price movements, except for "downsizers" who may convert some liquidity to other assets or cash.

Agreed.

Demand and supply are interrelated anyway Astro. It's all well and good to say that investors are only buying established properties, but that isn't correct. The last figure that I saw, mid last year, from the ABS, was that around 45% of new starts were for investors, at that time, although owner occupiers had risen as well, annually around 13% last year, as far as I am aware. If you remove that 45% from the building industry, what happens to employment? It all has a flow on affect.

But, as I have said, I am no economist, so what the hell would I know? All I can say for certain is that I am glad that I am not just starting out, as it would be tough.

Full comments withdrawn. I withdraw from all further comment on IIS.

[Kunama]

Some of the ideas above are interesting but rather simplistic in that they fail to take the 'follow on' effect into consideration. When you change one thing you affect many things down the line, if businesses aren't profitable they aren't going to employ people, who then will be on welfare etc etc.....

The views about property investors always amuse me. Seems to me that some people have an unrealistic idea of the actual return a property owner gets from a rental property. Realistically, sometimes I feel I would get a better return from my $$$ if I sold the properties and donated the money to charity.

Unfortunately I find that "tenants" sometimes aren't an asset. These days they won't even replace lightbulbs or smoke detector batteries, instead they call the agent who sends a repairman and bills me for each such callout. Most recently I was billed $110 for an electrician to repair a ceiling fan, turns out the tenants children had removed the batteries from the remote control for their toys, did the tenant apologise or offer to reimburse me for the callout?

Perhaps I lack sympathy for some of the people always looking to blame others for their lot in life, for the cost of houses etc but in my experience those that were most vocal were also the least likely to want to do overtime I offered them choosing to go to the beach instead.

[el_draco (Rom)]

The six ways to fix the economy are all sensible in the short term.... which is precisely why they wont be implemented.

Politicians are not interested in doing what is right for the country, they are only interested in maintaining power and trying to inflict their particular dogma on the rest of us.. These cretinous morons play their power games with scant regard for the impact it has on the public, our environment or the future. They waste OUR money, destroy OUR environment and retire on fat benefits WE pay for.

Pollies work to maintain the status quo... the rich get richer, the poor get poorer. When "busted", the legal profession protects them. Rarely does a Polly do time, yet the stench of corruption at all levels of government is palpable. Disgraced pollies almost always pop up again in some power position. The Royal Commisions plastered all over the media will doubtlessly lead to NOTHING.

Those in the major parties demonise anyone who attempts to break their power. Greens are labelled as "fringe", dangerous and incompetent yet they are the only party who make an attempt to stand up for our environment..., you know that thing we all rely on for survival... Liberals rip everything labour does to pieces, and vice verse. Both sidea LIE blatantly and the rest of us pay for it over and over again.

Longer term, even the "6 ways" wont fix the economy, our economy cant be fixed because it is predicated on constant growth and that is completely impossible on a single planet... "Fixing" the economy requires a new way of thinking and I am sorry to say, I don't believe we are capable of doing it at this point in time. The planets systems will need to substantially collapse before "self-interest" stops being our motivation.

I've come to the conclusion that Western "democracy", like all other systems of government, is a complete failure. Those who "lead" us are not qualified to do so and those that vote them in are, for the most part, idiots. Pollies threaten us with fines if we don't vote, but don't provide a "none of the above" option on the ballet paper. That aint free, nor is it democratic.

We call it a rat race for a good reason. Anyone care to stop running?

[Hans Tucker (Hans)]

Originally Posted by Kunama

Some of the ideas above are interesting but rather simplistic in that they fail to take the 'follow on' effect into consideration. When you change one thing you affect many things down the line, if businesses aren't profitable they aren't going to employ people, who then will be on welfare etc etc.....

The views about property investors always amuse me. Seems to me that some people have an unrealistic idea of the actual return a property owner gets from a rental property. Realistically, sometimes I feel I would get a better return from my $$$ if I sold the properties and donated the money to charity.

Unfortunately I find that "tenants" sometimes aren't an asset. These days they won't even replace lightbulbs or smoke detector batteries, instead they call the agent who sends a repairman and bills me for each such callout. Most recently I was billed $110 for an electrician to repair a ceiling fan, turns out the tenants children had removed the batteries from the remote control for their toys, did the tenant apologise or offer to reimburse me for the callout?

Perhaps I lack sympathy for some of the people always looking to blame others for their lot in life, for the cost of houses etc but in my experience those that were most vocal were also the least likely to want to do overtime I offered them choosing to go to the beach instead.

And likewise Landlords do not carry out necessary repairs. I have been a tenant in the same property for 5 years, I paid for the security system and window locks to be installed when the break-in occurred, I paid for the electrician to replace the faulty light switch and the plumber to fix a leaking mixer tap and repairs to the water tank/rain bank unit. As for batteries in a Smoke Alarm, if it is written in the lease agreement then they must replace the batteries every year then that is what they should be forced to do...it's in my lease and that is what I do. Not all tenants are bad and not all landlords are great.

[casstony]

Originally Posted by Kunama

Unfortunately I find that "tenants" sometimes aren't an asset. These days they won't even replace lightbulbs or smoke detector batteries, instead they call the agent who sends a repairman and bills me for each such callout. .

Friends got a call from their tenants to remove an orb weaver and it's web from near the front door; I wonder how much a repairman would charge for that?

[Stardrifter_WA]

Originally Posted by kinetic

Good points Marc.

Re: the domestic credit debt:

The new law reins that in a bit but doesn't go far enough I reckon.

How many people are sensible enough if they come into a windfall of a few
grand, like a tax return....to pay off every credit card back to zero.
Then rip it up.

Not many.

Steve

Hi Steve,

You make it sound as if it is all the banks fault.

Comments withdrawn. Apparently, I am incorrect for sharing my opinion and withdraw from all further comment on IIS.

[casstony]

Originally Posted by Hans Tucker

Not all tenants are bad and not all landlords are great.

Inflated house values and consequently inflated rents place extra pressure on the relationship I imagine. House prices are near double the long term trend value.

[casstony]

Originally Posted by Stardrifter_WA

You make it sound as if it is all the banks fault.

One bank or another is ultimately responsible for most of society's ills.
They manipulate us in ways unnoticed by most and are the architects of the current sad state of world finances.

[Astro_Bot]

Originally Posted by Stardrifter_WA

It's all well and good to say that investors are only buying established properties,

Actually, I didn't say that.

I was going to address the stats you quote, but as they don't refute what I was saying, and in fact support it to some degree, I think there's little point*. If anything, you're making my argument.

* Well, probably no point at all, since who the heck in authority is listening to us?

[Stardrifter_WA]

Originally Posted by casstony

One bank or another is ultimately responsible for most of society's ills.
They manipulate us in ways unnoticed by most and are the architects of the current sad state of world finances.

Maybe, I don't know the workings of the financial system, so I cannot comment on that.

I wish I did, I would probably be a lot richer, but then, that would be wrong, wouldn't it?

[Stardrifter_WA]

Originally Posted by Astro_Bot

Actually, I didn't say that.

I was going to address the stats you quote, but as they don't refute what I was saying, and in fact support it to some degree, I think there's little point*. If anything, you're making my argument.

* Well, probably no point at all, since who the heck in authority is listening to us?

Wasn't disputing your argument, just adding to the commentary......and waiting to be attacked for daring to share my opinion.

And, if you want up to date and accurate stats, give an hour or so and I will search the ABS. But then, as you say, what is the point....I'd still be wrong!

[Kunama]

Originally Posted by Hans Tucker

And likewise Landlords do not carry out necessary repairs. I have been a tenant in the same property for 5 years, I paid for the security system and window locks to be installed when the break-in occurred, I paid for the electrician to replace the faulty light switch and the plumber to fix a leaking mixer tap and repairs to the water tank/rain bank unit. As for batteries in a Smoke Alarm, if it is written in the lease agreement then they must replace the batteries every year then that is what they should be forced to do...it's in my lease and that is what I do. Not all tenants are bad and not all landlords are great.

Hans, if you ever move to the Sunshine Coast and need a nice townhouse to live in you let me know !!!!

[AndrewJ]

Pollies work to maintain the status quo... the rich get richer, the poor get poorer.

Just listening to the news this morning, where the govt is now talking about freezing the bureaucrats pay to help with the "heavy lifting".
Seemed like a good bit of spin, as i remembered that it was only a month or so ago that they got 5% pay rises, simply because thay didnt get a rise the year before????
A 42K pay "rise" should get em through the freeze

Andrew

[Hans Tucker (Hans)]

Originally Posted by AndrewJ

Just listening to the news this morning, where the govt is now talking about freezing the bureaucrats pay to help with the "heavy lifting".
Seemed like a good bit of spin, as i remembered that it was only a month or so ago that they got 5% pay rises, simply because thay didnt get a rise the year before????
A 42K pay "rise" should get em through the freeze

Andrew

There is a catch....the independent Remuneration Tribunal must approve the freeze...I will believe it when I see it happen.

[AndrewJ]

There is a catch....the independent Remuneration Tribunal must approve the freeze..

Understood.
My point was more that they have just received a 100% iron clad guaranteed pay rise, so coming out and saying they will now accept a freeze
for the next year or so ( and hence imply they are taking some pain along with the rest ), is just insulting our intelligence.

Andrew

[Hans Tucker (Hans)]

Originally Posted by AndrewJ

Understood.
My point was more that they have just received a 100% iron clad guaranteed pay rise, so coming out and saying they will now accept a freeze for the next year or so ( and hence imply they are taking some pain along with the rest ), is just insulting our intelligence.

Andrew

Two important points that seem to have been absent from todays news reports.