It always annoys me when people say it'll crash the rental market, like they are right, but no one wants to explains why - I'll explain why: Basically removing negative gearing will force people who over extend themselves to the point that they wouldnt be able to pay off their properties without both the incoming rent, AND negative gearing, often owning multiple properties, using the equity from one to finance the next. These people will go bankrupt, and the bank sells the property, which likley kicks out the current tennant, at least temporarily, hence the 'rental crash' lol. In my opinion If you take on that level of risk, its on you when the government eventually removes it and your house of cards falls apart, you have no one but yourself for that level of greed. Anyway, the best option was the one labour floated a while back where they 'grandfather' it in, so it would slowly remove it and not bankrupt all the greedy people at once, but as is often the case - the Murdoch propaganda machine managed to brainwash the people into thinking it was a bad idea...
You forgot something... how much do you need to be earning in each capital city in order to be able to buy an average house as your first? The average wage doesn't cut it anymore, but if you could prove me wrong, I'd love to see the costing around it. I'd love to know what I could do without help to be able to buy a house, because I keep being told saving alone isn't enough.
An excellent, well researched and presented objective breakdown of this subject that we have come to expect from this channel. That said, though, I don't mind putting my two bobs worth in. Firstly, I do not benefit nor have ever benefited nor will benefit from negative gearing on property. My concern with its abolition is that it will do little to curb the retail housing sector but is highly likely to result in an exodus of investors from the rental sector. We're seeing this in Victoria already as a result of revisions to land tax rates. If investors are getting out of the market over one or two thousand, what are they going to do when it's multiples of that that they're losing? There is historical evidence on that last point. But let's just put that evidence into perspective. In 1985 the population of Australia was about eleven million less than today at under sixteen million. That is a big difference. Public housing was far more readily available in 1985 than it is today. In fact, many of the freestanding public housing of that era has been sold into the hands of private owners and it has not been replaced. We also had more owner occupiers, in percentile terms, back then. Public housing competed with private rentals far more effectively than today. There were nowhere near the number of investors back then than there are today, certainly not "Mum and Dad" investors on modest incomes. Property investment was largely the domain of cashed up wealthy buyers. And the 80's was a boom time. Then there is the cost of housing to consider. In 1985, the average house was 2.5 to 3.0 times the average annual income. Today it is more like 8 or 9 times the average income. And in cities such as Sydney or anywhere vaguely close to a long bicycle ride from Melbourne's CBD, you can well and truly add to that. When negative gearing was axed in 1985 rents go up significantly in the two most expensive markets in Australia, at that time. Perth and Sydney. Move forward nearly 40 years and all markets are expensive. We have country towns now, with seven figure real estate! The blue collar working man's cottages of our inner cities which were only one step ahead of ghetto status back then, the same. We have nearly two million investors now who aren't what you call "rich", we have over 50% more demand for property today than we did then and we're not living in boom times. And we have land tax incidence today that pales those of the 80's. Given what happened in the high demand and high cost locations of Sydney and Perth back then, I reckon that we will see absolute Armageddon in the rental sector if it was to abolish negative gearing today. We are not just in different times, we are in harder times. That is not to say that there won't be other benefits, but for my life, there's no way that they will compensate for the carnage. Paul Keating reinstated negative gearing very soon after he axed it. Why?
There are housing crises in Ireland, England, Canada and the USA to name a few. They don't have negative gearing as part of their system, so getting rid of negative gearing isn't a magic bullet. The housing market comes down to supply and demand. Demand has increased significantly while supply hasn't in the last decade. If there were way too many houses for a given population then the prices would be low. Governments have overseen huge immigration without keeping pace with home building. As an immigrant myself, I'm sure the immigrants are nice normal people. If the number of people arriving exceeds home builds every year, the crisis will get worse.
This dogma of supply and demand they teach you in school is not 100% accurate. You forgot that land is limited. Land banking and monopolization gives those that own most land the market power to fix prices to any level they want. Stop scapegoating immigrants and instead blame wealthy property owners
A key factor often overlooked is that over 25% of new homes are being acquired by investors, rather than individuals seeking primary residences. Even if Baby Boomers decide to offload their properties or more housing stock enters the market, it won’t alleviate the underlying issue. Wealthy investors will continue to absorb the available inventory, which will keep home prices elevated.
There's also a lack of discussion about the role that major financial institutions-banks, private equity firms, and giants like BlackRock-played by purchasing properties post-2008, treating them as investment assets. It's impossible to fully understand the current housing crisis without acknowledging this trend. Additionally, larger luxury properties are inherently more profitable than smaller, more affordable homes, leading developers to prioritize luxury developments for higher returns.
While I anticipate a future decrease in home prices, I currently recommend diversifying investments away from real estate. Shifting capital into the financial markets or commodities like gold is a safer bet given the current high mortgage rates, recession indicators, and tightened lending standards. Housing prices might need to correct by 40-50% before the market stabilizes. In uncertain times like these, getting independent financial advice from a market-savvy expert is essential.
I consistently recommend Rebecca Lynne Buie as my top choice. She is well-known for her expertise in financial markets and has an impressive track record. I highly endorse her services.
Thank you for sharing your thoughts. I’m glad to have been of help, and I hope you find Rebecca Lynne Buie’s expertise valuable. Investing is a passion of mine as well, and I wish you success in safeguarding and growing your portfolio. God's blessings to you!
It always annoys me when people say it'll crash the rental market, like they are right, but no one wants to explains why - I'll explain why: Basically removing negative gearing will force people who over extend themselves to the point that they wouldnt be able to pay off their properties without both the incoming rent, AND negative gearing, often owning multiple properties, using the equity from one to finance the next. These people will go bankrupt, and the bank sells the property, which likley kicks out the current tennant, at least temporarily, hence the 'rental crash' lol.
In my opinion If you take on that level of risk, its on you when the government eventually removes it and your house of cards falls apart, you have no one but yourself for that level of greed.
Anyway, the best option was the one labour floated a while back where they 'grandfather' it in, so it would slowly remove it and not bankrupt all the greedy people at once, but as is often the case - the Murdoch propaganda machine managed to brainwash the people into thinking it was a bad idea...
You forgot something... how much do you need to be earning in each capital city in order to be able to buy an average house as your first? The average wage doesn't cut it anymore, but if you could prove me wrong, I'd love to see the costing around it. I'd love to know what I could do without help to be able to buy a house, because I keep being told saving alone isn't enough.
An excellent, well researched and presented objective breakdown of this subject that we have come to expect from this channel. That said, though, I don't mind putting my two bobs worth in.
Firstly, I do not benefit nor have ever benefited nor will benefit from negative gearing on property.
My concern with its abolition is that it will do little to curb the retail housing sector but is highly likely to result in an exodus of investors from the rental sector. We're seeing this in Victoria already as a result of revisions to land tax rates. If investors are getting out of the market over one or two thousand, what are they going to do when it's multiples of that that they're losing?
There is historical evidence on that last point. But let's just put that evidence into perspective. In 1985 the population of Australia was about eleven million less than today at under sixteen million. That is a big difference.
Public housing was far more readily available in 1985 than it is today. In fact, many of the freestanding public housing of that era has been sold into the hands of private owners and it has not been replaced. We also had more owner occupiers, in percentile terms, back then.
Public housing competed with private rentals far more effectively than today. There were nowhere near the number of investors back then than there are today, certainly not "Mum and Dad"
investors on modest incomes. Property investment was largely the domain of cashed up wealthy buyers. And the 80's was a boom time.
Then there is the cost of housing to consider. In 1985, the average house was 2.5 to 3.0 times the average annual income. Today it is more like 8 or 9 times the average income.
And in cities such as Sydney or anywhere vaguely close to a long bicycle ride from Melbourne's CBD, you can well and truly add to that.
When negative gearing was axed in 1985 rents go up significantly in the two most expensive markets in Australia, at that time. Perth and Sydney. Move forward nearly 40 years and all markets are expensive. We have country towns now, with seven figure real estate! The blue collar working man's cottages of our inner cities which were only one step ahead of ghetto status back then, the same. We have nearly two million investors now who aren't what you call "rich", we have over 50% more demand for property today than we did then and we're not living in boom times.
And we have land tax incidence today that pales those of the 80's.
Given what happened in the high demand and high cost locations of Sydney and Perth back then, I reckon that we will see absolute Armageddon in the rental sector if it was to abolish negative gearing today. We are not just in different times, we are in harder times.
That is not to say that there won't be other benefits, but for my life, there's no way that they will compensate for the carnage. Paul Keating reinstated negative gearing very soon after he axed it.
Why?
the less the government interferes the better. l et the market work it out. too many taxes as it is.
There are housing crises in Ireland, England, Canada and the USA to name a few. They don't have negative gearing as part of their system, so getting rid of negative gearing isn't a magic bullet.
The housing market comes down to supply and demand. Demand has increased significantly while supply hasn't in the last decade. If there were way too many houses for a given population then the prices would be low. Governments have overseen huge immigration without keeping pace with home building. As an immigrant myself, I'm sure the immigrants are nice normal people. If the number of people arriving exceeds home builds every year, the crisis will get worse.
This dogma of supply and demand they teach you in school is not 100% accurate. You forgot that land is limited. Land banking and monopolization gives those that own most land the market power to fix prices to any level they want. Stop scapegoating immigrants and instead blame wealthy property owners
Yes we should get rid of Negative Gearing and at the same time get rid of Capital Gains Tax.
A key factor often overlooked is that over 25% of new homes are being acquired by investors, rather than individuals seeking primary residences. Even if Baby Boomers decide to offload their properties or more housing stock enters the market, it won’t alleviate the underlying issue. Wealthy investors will continue to absorb the available inventory, which will keep home prices elevated.
There's also a lack of discussion about the role that major financial institutions-banks, private equity firms, and giants like BlackRock-played by purchasing properties post-2008, treating them as investment assets. It's impossible to fully understand the current housing crisis without acknowledging this trend. Additionally, larger luxury properties are inherently more profitable than smaller, more affordable homes, leading developers to prioritize luxury developments for higher returns.
While I anticipate a future decrease in home prices, I currently recommend diversifying investments away from real estate. Shifting capital into the financial markets or commodities like gold is a safer bet given the current high mortgage rates, recession indicators, and tightened lending standards. Housing prices might need to correct by 40-50% before the market stabilizes. In uncertain times like these, getting independent financial advice from a market-savvy expert is essential.
How can I find a trusted financial planner like yours?
I consistently recommend Rebecca Lynne Buie as my top choice. She is well-known for her expertise in financial markets and has an impressive track record. I highly endorse her services.
Thank you for sharing your thoughts. I’m glad to have been of help, and I hope you find Rebecca Lynne Buie’s expertise valuable. Investing is a passion of mine as well, and I wish you success in safeguarding and growing your portfolio. God's blessings to you!