It sure is, lets hope some of the potential FHBs take the advice and go on strike so rents go up while house prices at the budget end of the market decline or at least stop going up to help investors return to the property market. :beer:
yes, lets hope..
and then lets hope the -ve gearing GETUP campaign grows legs eh York ? :beer:
Rastus2 - what was the last getup campaign that succeeded in making a real difference to our lives?
Any expressed market opinion is my own and is not to be taken as financial advice
Pollies tell fibs about negative gearingBy Ross Gittins
We all know that when Paul Keating got rid of negative gearing in 1985 this proved disastrous for the rental market and he was forced to restore it.
We all know this because the politicians - from John Howard to Simon Crean - keep reminding us of it.
There's just one small problem: it's not true. It's remarkable how bad we are at remembering events - and how easily history can be rewritten by people with an axe to grind.
A negatively geared property investment is one where you borrow such a high proportion of the cost of the property that your interest payments and other expenses exceed the rent you earn. You then deduct this operating loss against taxable income from other sources.
In July 1985 - and as part of a much bigger tax reform package - Treasurer Keating moved to "quarantine" losses from negative gearing by stopping them from being deducted against other income. The US Congress had already done something similar.
But, so we're asked to believe, this caused investment in rental accommodation to dry up. Vacancy rates fell very low and rents shot up. By September 1987 - just over two years later - Mr Keating was forced to admit his error and restore the old rules.
However, Saul Eslake, ANZ's chief economist, has gone back to check this story and can't find it.
His examination of the Real Estate Institute of Australia (REIA) figures for the capital cities shows that rents rose sharply only in Sydney and Perth (and the Bureau of Statistics' figures for dwelling rent don't show a marked increase for any capital).
If the tax change was causing trouble, you'd expect it to be showing up in all cities, not just one or two.
Mr Eslake's conclusion is that rents in Sydney and Perth surged because their rental markets were unusually tight for reasons that had little to do with the tax change.
And this conclusion is supported by an earlier study by Blair Badcock and Marian Browett, geographers at the University of Adelaide.
They say Sydney was the only case that provides support for the claim that the tax change caused problems. "And even here the flow-on effects of the tax changes have to be weighed against the contribution of the general turndown in housing activity in Sydney to the deterioration of the vacancy rate and a real rise in rents," they say.
But the academics remind us of a factor the pollies gloss over: the central role that politics played in the whole affair.
The REIA began campaigning against the move to curtail negative gearing even before it was put into effect. The estate agents predicted that ending negative gearing would have dire consequences for renters, and they really stepped up their claims of disaster in the federal election campaign of July 1987.
They managed to win the support of the Labor governments of NSW, Victoria and Western Australia, and they put the frighteners on Bob Hawke to the point where, in just the last week of the campaign, he agreed to re-examine the issue.
It may be significant that the decision to restore negative gearing came only a little over a month before the stockmarket crash of October 1987. It may be that the preceding boom had drawn investors' attention away from real estate, whereas the bust caused them to flood back.
Be that as it may, it seems clear that when today's politicians tell their porkies about why the abolition of negative gearing was reversed, what they're really saying is: if someone as tough as Keating got beaten by the real-estate agents, why would you expect a wimp like me to take them on?
Well, I think it's all in the timing. The time to move against negative gearing will be when the looming over-supply has finally caught up with the rental apartment market. When the boom has busted, prices have collapsed, vacancy rates are way up and rents have fallen even further.
That's when the property developers' get-rich-quick gulls will be discovering they're down the mine to the tune of several tens of thousands of dollars - and will be looking for someone other than themselves to blame.
That's when people like me will be pointing out that the Howard Government did much to induce them to make their foolish investments by thinking it was great policy to take negative gearing and combine it with a 50 per cent discount on capital gains tax.
Here's something to remember the next time you hear Peter Costello scoring a cheap point by noting the huge revenue gain the NSW Government has made from the property boom thanks to its stamp duty on conveyances.
About 30 per cent of the growth in conveyancing duty has effectively been diverted to other state governments because of the way the Commonwealth Grants Commission's formula for dividing the GST revenue between the states penalises NSW and Victoria.
Like all federal politicians from those states, Mr Costello believes his ambitions are best served by continuing the rip-off of his fellow state taxpayers.
Rastus2 - what was the last getup campaign that succeeded in making a real difference to our lives?
Good question Peter.
None that I know of.
Does it matter if the getup campaign is the trigger for change ?
What probably matters is that the MSM has headlines over the questioning of -ve gearing, and the general public *might* awaken to it more... if all of that continues then change might happen.
If not, then what harm is done by trying to awaken the masses ?
Rents certainly rose in Sydney, the biggest city, when NG was removed...
Of course this doesn't prove the rise was totally caused by the removal of NG. Rents would probably have risen in Sydney anyway (just to a lesser degree).
Rents didn't rise everywhere, but perhaps they would have fallen if NG had not been removed, so removal of NG kept rents flat, rather than allowing rents to fall.
Logic suggests that NG will place upward pressure on house prices and downward pressure on rents, but there are always other factors at play, so the negative/positive influence of NG may not always be strong enough to over-ride the other factors affecting the market.
So Rastus (assume that's still your preferred name on this forum), why do you believe NG was reintroduced, if not because its removal led to upward pressure on rents?
Sydney rents increased 4.1% in real (CPI adj) terms since 2000 (0.4% annually) while house prices increased more than 50% in real (CPI adj) terms (~4% annually)
Sydney rents increased 4.1% in real (CPI adj) terms since 2000 (0.4% annually) while house prices increased more than 50% in real (CPI adj) terms (~4% annually)
Does this suggest shortage driven price growth?
The Sydney boom peaked in 2003. Construction activity had been strong during the boom, and by 2003, rental vacancy rates were around 5%, so there was a huge over-supply of property. As a result, rents flatlined and house prices declined by about 20% in real terms over the following half a decade while that over-supply was gradually consumed.
Fast forward to 2008... construction activity had slowed right down after the boom ended, but the population kept on rising. As a result, Sydney rental vacancy rates had dropped to 1-2% by 2008, which is where they still are today (1.3% according to SQM), and house prices started rising again. The over-supply had gone, and we had moved into a shortage scenario.
That chart is ok for showing trends - which is the point you were making.
But the chart significantly understates the rental rises due to it being based on the rental indices constructed by the ABS for the purposes of the CPI index calculation. The indices are adjusted for things like quality and thus understate the actual rent increases. The author of the chart, Unconventional Economist, has recognised the limitations of the chart in that respect and has asked for better rental data.
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