Negative gearing doubts and ATO watches home purchasers

Australian banks may have stopped lending to the mainland Chinese - a smart move, but maybe too late - but what about the recent, almost “bottomless” amount of money that HNA is spending on acquisitions around the globe.

The mechanics involved look pretty risky to me, with seemingly multiple layers of borrowing against assets.

Mark my words, it is not going to end well. We saw the same thing with the US Sub-Prime crisis and the same mechanics there too. You cannot just “create” money out of thin air by borrowing against an asset that has been borrowing against another asset (ad infinitum) for multiple SBLCs.

What a surprise! The big increases relate to the most popular and desirable in Sydney, mostly with harbour views!! If you are looking for your first house, don't complain about affordability if you are seeking a property in those areas. Do what the baby boomers did (me included) - save your money - make do with a purchase in an affordable suburb and gradually move to where you would like to be - it isn't that hard - it just requires discipline. None of the data presented shows the other side of the equation - just how much has the population of Sydney/Melbourne increased? Also the rate of household formation has a huge impact on demand - neither of those things has anything to do with negative gearing. Hence the point made last week, if negative gearing is the cause of price increases, why does London etc suffer from the same issue - where they don't have negative gearing. Let's get a little more analytical about this rather than attempting a simplistic solution that is going to have a dramatic impact on rents - just ask Paul Keating when he tried it between July 1985 and September 1987!

Greg, the boomers who bought in the undesirable suburbs, those hell holes like randwick, marrickville and stanmore didn't need to deal with 3 hours of daily commuting that first home buyers now buying in the Wild West need to deal with.

Negative gearing apparently don't impact WA or NT... Turnbull is right. You can all go home now

We are unfortunately becoming a nation of housing 'haves' and 'have nots'. This cannot be good for a balanced society going forward. There are multiple reasons for reduced housing affordability due to the spiralling of house prices relative to wage increases over the past 20 years. These include: low interest rates, relaxation of bank lending requirements and a surge in foreign investors. However, it is the taxation disparities (via capital gains tax concessions and negative gearing) that appear to be hitting first homebuyers the hardest. And this is the main area where the Federal Government has the capacity to bring about change.

As a Grattan Institute Report issued in 2016 pointed out, Australia's negative gearing arrangements favour investors over homebuyers and are out alignment with housing and taxation arrangements in most other countries. Our current Treasurer, with his background in the property industry, can be relied upon to do nothing to address this distortion. Vested interests (i.e. property investors; banks and real estate agents) continue to prevail.
This is a significant emerging voter issue that the Government continues to ignore - potentially at its own peril.

Since 2009, Sydney home values have doubled and Melbourne have climbed 85 per cent. In 2011, less than 10 per cent of investors held multiple investment properties, according to Digital Finance Analytics. This has now grown to 16 per cent nationally, and on the east coast multiple investment properties is now approximately 18 per cent.

An excellent article. Clearly the major reason why prices are increasing in Melbourne and Sydney is because the vast majority of migrants want to settle there. Proposals by the Government to offer 10 year visitor visas to Chinese nationals, without obtaining similar access for Australians wanting to live or work in China, will only create an additional demand for holiday homes in Sydney and Melbourne.

Another factor adding to the price growth in Sydney and Melbourne is the substantial infrastructure spending by the NSW and Victorian Governments at a time of peak demand for the construction industry. The amounts being spent in these cities is significantly more than when the mining investment boom was underway in the Pilbara and Gladstone.

Finally, Australia’s negative gearing and capital gains tax policies provide most benefit to investors in markets where the capital gains are greatest. Whilst this creates a voter issue, the effect is more insidious because these policies distort investment flows by encouraging investment in apartments at the expense of productive businesses. For example, although tourist arrivals are at record levels, developers are not building hotels.

It isn't all negative gearing that distorts house prices. There is a substantial number of active live-in renovators enjoying a capital gains free investment. The investment often adding 50%+ to the house value. This is particularly true in some of the older single story semi-detached suburbs where many have had a second floor added to make them 4 bedroom and double the value.

I think I see what you're trying to say - that median house prices on a like-for-like basis haven't gone up as much as the raw statistics imply, because the stock of houses has improved in quality. I'd be interested in testing that empirically.

What I don't see is how this could double the value of a property. When you build on a vacant block you don't increase the value by what you spent on the house, because you've automatically reduced purchaser options for what to do there. It becomes worth more than the vacant block, but doesn't increase by the cost of the house. When you extend an existing building the same applies. You increase the price you'll get for the property, but it can't double. Another factor is that extending doesn't change the land value which is a substantial proportion of the property's total value.