Australia, budget, CPI, demand, disposable income, economics, economy, housing, housing investment, housing prices, investment, investors, Malcolm Turnbull, mortgage, negative gearing, owner occupiers, politics, Ponzi scheme, prime minister, property values, rents, residential investment, speculative investment, tax concessions
I posted the following about negative gearing to Australian PM Malcolm Turnbull’s Facebook page yesterday. I went there today but the post had been deleted. I guess I can understand why. I posted it again. The government supports the policy and thinks it helps the economy. It doesn’t. Nor does it help the budget …
To say that property values will go down and rents up if negative gearing is removed is nonsense. You can’t have lower house prices and higher rents together for any length of time at all, even if these things happen initially, which they probably won’t to any extent. Investors would quickly hop into such a market, knowing they could buy a house for less money and get more in rent (most investors don’t negative gear). It would also mean that buying a home would be more attractive to renters. Greater demand by both investors and potential owner occupiers would see the market quickly adjusting, with housing prices and rents both stabilising.
Overly generous tax concessions on property investment in this country has greatly increased demand for housing, pushing prices up rapidly, which is what we have seen for best part of two decades. We now have among the highest housing prices in the world. Speculative investors are buying and selling existing houses and units for ever higher prices. It is little better than a Ponzi scheme. The amount borrowed for residential investment properties is 80 times higher than 30 years ago and prices have gone up about eightfold.
And rents have increased 25% over and above the CPI increases over the last 30 years, which means that a house that would have cost $300 a week in rent had rents kept pace with the CPI instead costs $375. That’s nearly $4000 more a year and is a large amount for struggling families to find, while ‘investors’ keep on riding this gravy train.
Many people have been priced out of the owner occupier market and are forced to pay high rents perhaps forever more. They never get to the stage where they have paid off a mortgage and have a large increase in their disposable income for things like renovations, household goods, a new car, a holiday, etc. The current policies on residential property investment are bad for the budget and bad for the economy. Have no doubts.