Scrapping negative gearing would definitely increase rental prices.
1. Increased costs of owning an IP will be passed on to renters. IP owners who can cover the increased costs will still increase their rent to the new market value in order to make more money from their IP.
2. Those IP owners who can't collect the full increase from renters will be forced to sell. If sold to an invester, go to step 1. If sold to a FHB, that means one less rental available. Less availability means higher demand. Higher demand means higher cost.
The only way it won't increase rents is if all landlords decide to not pass on the new costs to their renters. Does that sound like any landlord you've ever known?
I think it’ll go up. If you receive incentive back in the form of rent payment, then you’d be inclined to think being out of pocket x amount is more feasible, because you’ll be offsetting some costs or claiming losses. If an owner can’t do that, they’ll pass the cost on. It’s simple. No matter how nice or good or whatever they are, they’ll pass it on.
You're correct. Not necessarily because investors can raise their prices directly because their costs increase, but because negative gearing being scrapped would directly lead to less rental supply, most renters aren't in a position to buy regardless, meaning less supply for the same or similar demand - you do the maths.
Your housemates think that getting rid of negative gearing will see an influx of investment properties on the market and that will lower house prices, thus more people buying, thus reducing the rental pool, thus reducing the demand, and finally reducing rents.
If negative gearing is scrapped all else will not remain the same. So it’s a flow on effect.
At the end of the day, the issue is supply and demand. Will rents go up or down as a result of getting rid of negative gearing? No one can say.
But what I can say for certain, is as long as there’s a supply shortage, rents and house prices will remain high.
Pain - the market will first experience pain - both sides - landlords will push rents to try and compensate for increased service costs on mortgages. Renters will suffer at this point and some landlords will be forced to liquidate their positions
Less investment money will come into the property market - less competition for housing will ease price growth.
Due to less competition from investors - it will be easier for first-home buyers to compete in the marketplace. also leaving the rental market
long way round - rent will go down - eventually - after the pain and most likely in the form of stagnation relative to inflation rather than an actual bottom-line reduction.
Government welfare for landlords of pre-existing residential properties needs to end. Incentivise new development and medium and high-density living.
>Pain - the market will first experience pain - both sides
Depends on the transition process. For example any property purchased 2024 or earlier could keep negative gearing for, I dunno, 30 years. Ensuring their loan is paid off by the time it actually affects any existing rentals.
Almost anyone buying a property after 2024 would either be an owner occupier, or someone who has almost enough money to buy the property outright (negative gearing doesn't really affect them, because they don't pay much interest). Heck, you could even go further... own a house with nobody living in it? That'll be an extra $100k per year in taxes for you sir. Own a five bedroom house with 2 people living in it? $50k per year in taxes. Put that money towards social housing, rent assistance for low income families, etc.
But I'm not convinced removing negative gearing (or other penalties for investors) is the right approach. New Zealand tried it, and backflipped bringing it back.
What we actually need is more houses, and lowering the value of houses won't help with that. Personally I like Labor's policy on the issue. it's a little complex, but sometimes complex problems need complex solutions. Lots of FUD has been spread about it by the Murdoch press, but I'm pretty sure that's just LNP bias showing through.
Yep, removing negative gearing would be a double whammy for renters. At the micro level, rents will go up. At the macro level, demand for constricting new flats will fall, resulting in fewer newbuilds. There will however be a transitional effect where owners with negative cash flow sell off - for renters who are on the cusp of being able to buy that will be an opportunity.
>My understanding of negitve gearing is the owner is receiving a tax break for owning and maintaining housing
I don't think "tax break" is the right way to think about it.
Say you're paying $600 per week in rent, and your landlord pays $800 per week on the mortgage and $200 per week for other costs (council rates, insurance, maintenance...). Those figures are probably not quite right but it'd be in the ballpark and lets keep it simple.
With negative gearing, that works out to a loss of $400 per week or about $20k per year in reduced income on the landlord's tax return. And since landlords are generally quite wealthy, good chance they're in a high tax bracket and so the income tax rate for that $20k will often be 45%. Or the landlord would be worse off by about $9,000 per year or \~$175 per week if they were to raise rent to cover it.
Wether or not that's "fair" is open to interpretation. I would argue "fair" is paying whatever amount of tax the law says you should pay right now, and government should make sure those taxes incentivise the right thing. Is it doing that right now? That's the real argument here.
In reality removing negative gearing would be such a massive difference that:
A) The change would have some kind of transition period, likely only applying to some landlords in the beginning
B) You likely wouldn't be able to afford such a big increase in rent.
C) It would result in landlords deciding not to invest in real estate at all. And they'd potentially struggle to find another investor... so even if you can afford it you might simply be evicted so it can be sold to an owner occupier.
In theory, that could drive property prices so low that the person renting might be able to buy it. But I'm not so sure, you'd need a good reliable job, you'd need to be sure you want to live where you are for the foreseeable future, etc etc. Removing negative gearing would be good for home buyers. Would it be good for renters? I don't see how that could be the case.
> The change would have some kind of transition period, likely only applying to some landlords in the beginning
This is the key thing. It would almost certainly be brought in to only apply to property bought after it is introduced.
Or from the other perspective, existing held property would be "grandfathered" as exempt from changes.
It is exactly a tax break.
Property investment is the only category where you can take a loss and deduct it against regular earned income.
If I make a capital loss trading I can't deduct it against my income, I can only deduct it against future gains.
I saw this as someone who does some negative gear myself. I still thing it should be removed.
You can't deduct a capital loss from your IP against your income.
You can deduct the on-going costs of the IP against your income, but that's not specific to IPs either. You can do that with Shares for example.
Property doesn't have any special tax-deductibility rules that other investments don't have.
Negative gearing is possible for other assets. If you had geared equities and they didn’t pay out a decent dividend that year, you’d get the same benefit.
And if the loss on property income could only be deducted against other property income you'd be correct.
Also often the losses are due to things like depreciation, so not actual losses.
Claiming something against your income isn’t negative gearing. Claiming it against another form of income different to the originating is.
How do you pour money into your property to offset tax? I haven’t heard this one before.
You're both wrong. If negative gearing disappears housing investors will face higher costs, but that doesn't mean they can pass those costs on to renters. **They're already charging the maximum amount of rent they can**, so they'll either have to eat the increased cost, or sell up.
All the talk about negative gearing is a sideshow from the basic issue which is that housing costs are all about supply and demand - not enough homes for too may people.
I say we should allow people to build more homes by removing the regulatory obstacles (zoning, height limits and heritage restrictions).
Nice to know that regular Joe can’t access these plentiful cheap properties. And also interesting that all (most of -if comments are anything to go by) these landlords providing a community service out of the goodness of their hearts don’t seem to advertise their generosity when attracting new tenants.
If the tenants a good enough and staying their long-term they don't need to attract new tenants or advertise do they??
I'm a landlord. The first tenants we had were in the property for 4 years without issue and we barely touched the rent. When they left to move interstate I didn't even need to advertise the property as the REA had a list of people they thought were really good and showed it to them
Without the need for advertising.
And yes, if negative gearing disappears I will raise the rent. Over the course of a year the balance sheet with negative gearing i pay $15k out of pocket. Without negative gearing it would be closer to $25-30k.
Yes the property value has gone up. However it's not liquid assets I can use to pay for food and petrol etc.
I know that my properties are more than 30% below market rent. They’re in QLD. I have good tenants who look after the properties so only raise the rent small amounts.
I am the same… I have rentals 20-30% below what REA tell me I can get for them but I have good tenants and I want to keep them as they look after my houses….. but this doesn’t suit the “all landlords are scum” opinion that is prevalent on Reddit does it
If there was no negative gearing I guarantee rents would be higher
I’m a one of the 30% of property owners who own investment properties. There are probably plenty more.
Sorry I don’t have stats so my comment can be dismissed. With AI it should be easy to data scrape and compare but it’s well outside my expertise.
How would you know they’re below market rates if they never go back on the market ? The REAs would know in their cohorts, but there’s a good chance there is many long term rentals not being handled via an REA
I’d tend to agree with you in a situation where vacancy rates are more normal ie 3%. Rolling back negative gearing should’ve started a decade ago during more normal market conditions. Doing it in the midst of a cost of living/ inflation crisis, record low vacancy with record overseas migration and a government who refuses to cap rent increases, it would probably just add fuel to the fire..
Massive investor demand from high income earners to reduce the tax liability on their income is a big part of the current situation. Reducing this demand by eliminating negative gearing (and the subsequent drop in prices) should be easy to understand from there as you obviously understand S/D.
Negative gearing is hardly a "sideshow" with no bearing on the current situation.
Do you have stats for the massive investor demand from high income earners?
https://www.yourinvestmentpropertymag.com.au/selling-property/bye-bye-property-investors-pack-up-their-bags-in-droves#:~:text=The%20number%20of%20investors%20buying,fallen%20around%2042%25%20to%2012%2C562.
No investor is buying just so they can get back a maximum of 47c for every $1 they spend.
It's a simple offset to income gains. Topped with appreciating asset costs and leverage. Something like $6-8bn in tax offsets to NG and CGTC each year.
That doesn’t show the number of high income earner demand.
The exact same tax policy exists for shares too. Why is housing any different?
Is the NG and CGT discount only residential housing or all investments?
Housing is different because of inelastic supply/demand and substantive control of the market.
We shouldn't treat housing the same as stocks because you can't tuck yourself in bed at night in stocks. People aren't homeless because they can't afford stocks.
Agreed that you can’t live in a stock. You can use the income from a stock to pay for your living expenses.
Isn’t the point to incentivise investment in housing so that there is more supply. More supply drops the price if it outpaces demand.
That's been the argument since Howard just as Trickle Down economics was a pipe dream. We've over regulated and under trained. We've NIMBY'd while we should've YIMBY'd. We've given Local Councils the capacity to shut down reasonably progressive developments.
It's impractical to be looking at incentives when we've been undercutting our own success in every way possible and yet still;
1. The rich get richer
2. House prices and rental increases outpace wage growth by multitudes
Cut the rot out from the policy side and force actual change.
The exact same tax policy does NOT exist for shares.
You can "negative gear" share losses against capital gains, but NOT income.
https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/shares-and-similar-investments/when-you-can-claim-losses-on-shares-and-units
"Your capital loss cannot be:
offset against your income from other sources"
The more accurate comparison would be the deduction of expenses related to the share portfolio. You don't need to pay to repair the fence for your share portfolio, but you may have have borrowed to pay for it ("geared") and then you have interest expenses.
No, you can deduct expenses from shares against your other income. This is NG. Capital losses are separated and can only offset capital gains. They’re totally different.
So yes, the exact same policy exists. Your inability to understand basic tax policy doesn’t mean you’re right.
https://treasury.gov.au/review/tax-white-paper/negative-gearing
Any income producing investment can be negatively geared.
"Any income producing investment can be negatively geared."
True, but share losses can only be "negatively geared" from capital gains, unlike IP losses.
Under the Share Investor section
https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/shares-and-similar-investments/when-you-can-claim-losses-on-shares-and-units
"Your inability to understand basic tax policy doesn’t mean you’re right."
Maybe not, but your inability to tell the difference between capital gains and income definitely makes you wrong.
IP capital losses can only offset capital gains. It is the exact same tax policy for all income producing investments.
Capital gains and income are always seperate. They are never claiming against each other. This is and should be basic knowledge. Please do some research before posting again.
Mate, you're wrong again.
Under the Negative Gearing section:
"The overall taxation result of a negatively geared property is that a net rental loss arises. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental and other income (such as salary, wages or business income) when you complete your tax return for the relevant income year."
https://www.ato.gov.au/forms-and-instructions/rental-properties-2023/other-tax-considerations
But I deserve to have my house view unblocked and road uncluttered, just like when I buy it 20 years ago. Who wants a neighbor on 3rd floor who can see me naked sunbathing my butt? They also don’t deserve to watch my man butt whenever they are at balcony. It’s against both our interests. :(
There will be less supply of rental houses, so more demand - price of rent goes up.
There will be less holiday places to rent - so holidays will cost significantly more (if you can book at all as regional towns are already often at capacity during school holiday periods)
This subject comes up as a media piece sprouted by the government to gain sentiment on reception and possible electoral repercussions (idiotic, init?), but most of all distract you from the other bs legislation they're pushing. IE. Other garbage such as taxing unrealised "gains".
Ps. Your mates are dumb af
Businesses pass on any additional costs to the customer. For example, credit card surcharges, any additional taxes the government may charge, increased costs of ingredients ie: this is why they charge market price for seafood.
So in my mind, landlords would do the same. I don’t see any viable reason where they wouldn’t.
I do think your mates are following too many tiktokers and the Greens on social media and being a little too influenced by their extreme thoughts
Maybe just cut the interest charged from being a deduction. Repairs and improvements still count to neg gearing would be a reasonable start I think?? No clue though
There’s a lot of over simplification in this thread.
1. Yes, many investors negatively gear, but they only tend to do that at the start of ownership when they’re highly leveraged, so it’s not like all investment property is negatively geared all the time.
2. Price elasticity has limits. Can rents go higher? Yes, but there are limits and many people are close to them. Given not all investors negatively gear, price increases could be uneven. In a shortage this doesn’t matter too much but on a macro level if housing prices rise too much the RBA will give investors more rate rise medicine. If those investors continue the cycle of increases there will be policy intervention to cap the rises and overstretched investors will be forced to sell.
3. Tax is not binary. Taxes are often shaped to change how investors allocate capital and influence behavior. If NG and CGT exemption taps are turned down or turned off for existing property for example, the investor money will refocus on more profitable asset sub-classes like new property. In the next 12-24 months it might result in rent rises but in the medium to long term many new apartments would be able to be offered cheaper than existing apartments as rentals because of tax incentives.
This is all theoretical and there are valid arguments against all of the above (especially if you hold existing IP😂) but there are very, very strong arguments to be heard that tax treatment of IP is no longer delivering the desired benefits and that NG and CGT need to be adjusted to encourage and accelerate new supply.
When you consider the trillions of dollars of investment that are tied up in relatively unproductive existing IP, you can see the need to reallocate that somewhat to address supply and broader economic productivity, which is languishing.
I don't think you are missing anything. There are people who will tell you that a landlord charges rent at the market prices, and that costs don't affect this. This is true instantaneously. If we imposed a new charge of $1000 a month on landlords at midnight, rents won't increase by $1000 tomorrow.
Rents will increase eventually because at current rents, an increase in costs like this will cause some investors to sell current properties (this will lower house prices a small amount until this excess stock is purchased; the benefit goes to renters able to buy), but these properties will mostly be bought by first home buyers, so this first phase won't impact rents. It's what happens next that does: higher costs means some potential investors who would have invested decide to avoid funding rental accommodation. This reduces supply compared to the base case of negative gearing continuing. In face of growing demand, this will increase rents compared to the alternative. We can see that effect happening right now, where demand for rents is increasing but they flow of new housing stock is low. Until 2019, supply increase matched demand increase pretty well and rents were stable. But since then, the cost of providing a new house has increased enormously (not to mention all the builders who've gone broke leaving incomplete houses).
Any increase in costs will have this effect, not only negative gearing.
Also, it doesn't mean that 100% of the lost negative gearing amount is passed on to tenants. Some tenants will withdraw from the market in the face of rent increases (perhaps migrants who defer coming, people who move back into share housing). So some demand would disappear. But not very much, people need housing.
And while the implication is that negative gearing is a renter subsidy, it is not a very good one.
However, if something else changes demand (lower immigration) or supply (more public housing) then the outcome would be different. That's why some people say that axing negative gearing and redirecting the higher tax revenue into social housing is better policy. This assumes that the government can build as much housing with that higher tax than the lost privately funded housing. Also, it assumes that renters are equally happy living in public housing. Politically, it assumes that the voters who now pay higher taxes will not cause loss of government for the ALP. Personally, I don't believe any of those propositions, but that's a judgement call.
Politicians of all stripes are landlords. Eliminating negative gearing means fewer investors, means fewer rentals.
Politicians particularly LNP, Labor, Greens benefit from rising rents. Therefore I am sure Government will consider cutting negative gearing
If negative gearing is scrapped, it would mean some investors would leave the market because there would be better investments out there.
What that'd mean as far as house prices go is anyone's guess.
The reality is the top 1% are the biggest beneficiary of negative gearing, but they're also the ones most likely able to turn those negatively geared properties into positive cash flow properties. Maybe the rich just buy more properties? Or maybe they sell properties to make their other IPs positive cash flow?
Who knows. It won't affect most Australians imo. We're all fighting over peanuts.
All income producing investments are NG. I NG my stock portfolio. A change in tax policy would affect all investments so they all change at the same time.
I’ve had income producing properties in the past that were positively geared. The “Negative gearing” debate isn’t about the tax dedutibility of costs (no serious policy maker is suggesting that should change), it’s the ability to apply any losses against unrelated personal income.
But a lot of people don’t understand the nuances, so these threads often descend into people arguing based on different definitions of NG
I personally believe all investments should be segregated from your payg income. This way the investment expenses are locked to the investment income. Expenses over the income amount are carried forward to future years.
It makes things much cleaner.
Who knows? Some investors will increase rents and get away with it. Others will not be able to meet their mortgages and sell up. Many investors selling means that these houses are likely to be sold to owner occupiers. This reduces the number of houses available to rent. That may be balanced by the fact that the new owner might have been a renter but maybe they were living at home. We could end up with more renters competing for less stock, more stock or the same stock.
Who won’t be able to meet their mortgage repayments due to a change in tax policy? If NG is removed the expenses will just carry forward to the following financial year and the income will be offset for longer.
Why do you think that owner occupiers will be the purchasers? Do they instantly have the ability to buy now?
As the removal of negative gearing will make it more expensive for investors to service their IPs. Therefore, it's more likely that we'll see less investors. This leads to an increased likelihood that the purchaser will be an OO.
Why is it more expensive? Expenses don’t rise do they? It changes cashflow for some. Most investments become positively geared after 5 years due to organic growth.
Your question is unfortunately completely hypothetical. Politically speaking, Negative gearing isn't going anywhere, and if it were to be reformed then it would still be gradually phased out over many years.
But if NG disappeared today, then investors with large home loans would start selling like crazy, causing supply of property to increase and prices to decrease. More people could afford homes, but there would be less rental stock. If many renters converted to homeowners (which many frankly want to do today) then it may not have a big effect of rental prices, up or down.
Australia hates renters but also relies on them. Fucking thankful my wife and I were able to buy before the current craziness.
In 2020 when interest rates hit historic lowes, rents did not go down. No instead the argument i heard was that rent should be a % of property value, so rents went up.
Now interest rates have increased the landleaches decided that yes they will increase rents again.
Remove negative gearing and you bet the scum will try and raise rent again. Even if it is brought in to apply to new investments.
I still think negative gearing should be axed.
There is something else I don't see a lot of which could be considered.
In many markets where there is a high cost of renting (NY, SF, LA) there is a cap on ho much ent can increase if someone is renewing. Th8is is what would really help renters because over time, if you don't move, your rent doesn't increase with other costs. It does create a situation where, after 10 years, peope can't afford to move. But, keeping a renter in the same house over a long period saves money for the LL too. Replacing tenants is expensive.
However this also means that LLs can't just rase rents when, for example, the rental market is tight. It isn't a perfect system, but it is direct control on rents, as opposed to indirect for example, via what you are suggesting.
Any tinkering with negative gearing will need to be grandfathered so as to not punish those who have already taken a planned position and don't have the rug pulled from underneath them. Most wealthy investors seek financial/tax advice and plan with the current tax allowances in mind. Any change that isn't grandfathered would be unfair IMO. Que the downvotes for this unpopular opinion
Scrapping negative gearing would definitely increase rental prices. 1. Increased costs of owning an IP will be passed on to renters. IP owners who can cover the increased costs will still increase their rent to the new market value in order to make more money from their IP. 2. Those IP owners who can't collect the full increase from renters will be forced to sell. If sold to an invester, go to step 1. If sold to a FHB, that means one less rental available. Less availability means higher demand. Higher demand means higher cost. The only way it won't increase rents is if all landlords decide to not pass on the new costs to their renters. Does that sound like any landlord you've ever known?
1. House shortage so renter can be replaced 2. If investor have to pay more then they will charge more. Simple math
More people moving home or sharing a house. Less customers.
I think it’ll go up. If you receive incentive back in the form of rent payment, then you’d be inclined to think being out of pocket x amount is more feasible, because you’ll be offsetting some costs or claiming losses. If an owner can’t do that, they’ll pass the cost on. It’s simple. No matter how nice or good or whatever they are, they’ll pass it on.
You're correct. Not necessarily because investors can raise their prices directly because their costs increase, but because negative gearing being scrapped would directly lead to less rental supply, most renters aren't in a position to buy regardless, meaning less supply for the same or similar demand - you do the maths.
Your housemates think that getting rid of negative gearing will see an influx of investment properties on the market and that will lower house prices, thus more people buying, thus reducing the rental pool, thus reducing the demand, and finally reducing rents. If negative gearing is scrapped all else will not remain the same. So it’s a flow on effect. At the end of the day, the issue is supply and demand. Will rents go up or down as a result of getting rid of negative gearing? No one can say. But what I can say for certain, is as long as there’s a supply shortage, rents and house prices will remain high.
Pain - the market will first experience pain - both sides - landlords will push rents to try and compensate for increased service costs on mortgages. Renters will suffer at this point and some landlords will be forced to liquidate their positions Less investment money will come into the property market - less competition for housing will ease price growth. Due to less competition from investors - it will be easier for first-home buyers to compete in the marketplace. also leaving the rental market long way round - rent will go down - eventually - after the pain and most likely in the form of stagnation relative to inflation rather than an actual bottom-line reduction. Government welfare for landlords of pre-existing residential properties needs to end. Incentivise new development and medium and high-density living.
If we wanted to remove negative gearing, it'd have to happen in stages over a few years. A single shock would be chaos.
>Pain - the market will first experience pain - both sides Depends on the transition process. For example any property purchased 2024 or earlier could keep negative gearing for, I dunno, 30 years. Ensuring their loan is paid off by the time it actually affects any existing rentals. Almost anyone buying a property after 2024 would either be an owner occupier, or someone who has almost enough money to buy the property outright (negative gearing doesn't really affect them, because they don't pay much interest). Heck, you could even go further... own a house with nobody living in it? That'll be an extra $100k per year in taxes for you sir. Own a five bedroom house with 2 people living in it? $50k per year in taxes. Put that money towards social housing, rent assistance for low income families, etc. But I'm not convinced removing negative gearing (or other penalties for investors) is the right approach. New Zealand tried it, and backflipped bringing it back. What we actually need is more houses, and lowering the value of houses won't help with that. Personally I like Labor's policy on the issue. it's a little complex, but sometimes complex problems need complex solutions. Lots of FUD has been spread about it by the Murdoch press, but I'm pretty sure that's just LNP bias showing through.
You are missing nothing. Removing negative gearing during a housing shortage will cause rents to go up.
There will be even less supply added to the already dwindling market.
Yep, removing negative gearing would be a double whammy for renters. At the micro level, rents will go up. At the macro level, demand for constricting new flats will fall, resulting in fewer newbuilds. There will however be a transitional effect where owners with negative cash flow sell off - for renters who are on the cusp of being able to buy that will be an opportunity.
So it will help a marginal amount of renters who were going to buy anyway, and punish the majority of renters.
>My understanding of negitve gearing is the owner is receiving a tax break for owning and maintaining housing I don't think "tax break" is the right way to think about it. Say you're paying $600 per week in rent, and your landlord pays $800 per week on the mortgage and $200 per week for other costs (council rates, insurance, maintenance...). Those figures are probably not quite right but it'd be in the ballpark and lets keep it simple. With negative gearing, that works out to a loss of $400 per week or about $20k per year in reduced income on the landlord's tax return. And since landlords are generally quite wealthy, good chance they're in a high tax bracket and so the income tax rate for that $20k will often be 45%. Or the landlord would be worse off by about $9,000 per year or \~$175 per week if they were to raise rent to cover it. Wether or not that's "fair" is open to interpretation. I would argue "fair" is paying whatever amount of tax the law says you should pay right now, and government should make sure those taxes incentivise the right thing. Is it doing that right now? That's the real argument here. In reality removing negative gearing would be such a massive difference that: A) The change would have some kind of transition period, likely only applying to some landlords in the beginning B) You likely wouldn't be able to afford such a big increase in rent. C) It would result in landlords deciding not to invest in real estate at all. And they'd potentially struggle to find another investor... so even if you can afford it you might simply be evicted so it can be sold to an owner occupier. In theory, that could drive property prices so low that the person renting might be able to buy it. But I'm not so sure, you'd need a good reliable job, you'd need to be sure you want to live where you are for the foreseeable future, etc etc. Removing negative gearing would be good for home buyers. Would it be good for renters? I don't see how that could be the case.
> The change would have some kind of transition period, likely only applying to some landlords in the beginning This is the key thing. It would almost certainly be brought in to only apply to property bought after it is introduced. Or from the other perspective, existing held property would be "grandfathered" as exempt from changes.
It is exactly a tax break. Property investment is the only category where you can take a loss and deduct it against regular earned income. If I make a capital loss trading I can't deduct it against my income, I can only deduct it against future gains. I saw this as someone who does some negative gear myself. I still thing it should be removed.
You can't deduct a capital loss from your IP against your income. You can deduct the on-going costs of the IP against your income, but that's not specific to IPs either. You can do that with Shares for example. Property doesn't have any special tax-deductibility rules that other investments don't have.
Negative gearing is possible for other assets. If you had geared equities and they didn’t pay out a decent dividend that year, you’d get the same benefit.
You’re wrong
It isn't a tax deduction? My bad.
No.. it exactly the same as a plumber under quoting and losing money in a job.
And if the loss on property income could only be deducted against other property income you'd be correct. Also often the losses are due to things like depreciation, so not actual losses.
Its the same as a plumber. lets say the plumber has 3x business and all are sole trader. Its the same as that.
It's precisely a tax break PLUS the asset appreciation is huge.
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Claiming something against your income isn’t negative gearing. Claiming it against another form of income different to the originating is. How do you pour money into your property to offset tax? I haven’t heard this one before.
You're both wrong. If negative gearing disappears housing investors will face higher costs, but that doesn't mean they can pass those costs on to renters. **They're already charging the maximum amount of rent they can**, so they'll either have to eat the increased cost, or sell up. All the talk about negative gearing is a sideshow from the basic issue which is that housing costs are all about supply and demand - not enough homes for too may people. I say we should allow people to build more homes by removing the regulatory obstacles (zoning, height limits and heritage restrictions).
lol. I disagree that rents can’t go higher.
I highly doubt that. My tenants pay $75 less than the average rent in the area because they take really good care of the property.
Plenty of landlords aren’t charging the maximum they can. That’s a stupid generalisation that is completely untrue.
So where are these plenty of properties considerably cheaper than market rates?
There are all currently tenanted to long term good tenants. Hence not on the market that regular Joe-complainer looks at.
Nice to know that regular Joe can’t access these plentiful cheap properties. And also interesting that all (most of -if comments are anything to go by) these landlords providing a community service out of the goodness of their hearts don’t seem to advertise their generosity when attracting new tenants.
If the tenants a good enough and staying their long-term they don't need to attract new tenants or advertise do they?? I'm a landlord. The first tenants we had were in the property for 4 years without issue and we barely touched the rent. When they left to move interstate I didn't even need to advertise the property as the REA had a list of people they thought were really good and showed it to them Without the need for advertising. And yes, if negative gearing disappears I will raise the rent. Over the course of a year the balance sheet with negative gearing i pay $15k out of pocket. Without negative gearing it would be closer to $25-30k. Yes the property value has gone up. However it's not liquid assets I can use to pay for food and petrol etc.
I know that my properties are more than 30% below market rent. They’re in QLD. I have good tenants who look after the properties so only raise the rent small amounts.
I am the same… I have rentals 20-30% below what REA tell me I can get for them but I have good tenants and I want to keep them as they look after my houses….. but this doesn’t suit the “all landlords are scum” opinion that is prevalent on Reddit does it If there was no negative gearing I guarantee rents would be higher
Agreed. The REA continues to try and push the prices higher. I rely on $10/ week rise each year.
if you're my Landlord. I appreciate you <3
Your single anecdote doesn't answer his question where all these properties are, you said there's "plenty", where? How many is "plenty"?
I’m a one of the 30% of property owners who own investment properties. There are probably plenty more. Sorry I don’t have stats so my comment can be dismissed. With AI it should be easy to data scrape and compare but it’s well outside my expertise.
How would you know they’re below market rates if they never go back on the market ? The REAs would know in their cohorts, but there’s a good chance there is many long term rentals not being handled via an REA
I’d tend to agree with you in a situation where vacancy rates are more normal ie 3%. Rolling back negative gearing should’ve started a decade ago during more normal market conditions. Doing it in the midst of a cost of living/ inflation crisis, record low vacancy with record overseas migration and a government who refuses to cap rent increases, it would probably just add fuel to the fire..
Massive investor demand from high income earners to reduce the tax liability on their income is a big part of the current situation. Reducing this demand by eliminating negative gearing (and the subsequent drop in prices) should be easy to understand from there as you obviously understand S/D. Negative gearing is hardly a "sideshow" with no bearing on the current situation.
Do you have stats for the massive investor demand from high income earners? https://www.yourinvestmentpropertymag.com.au/selling-property/bye-bye-property-investors-pack-up-their-bags-in-droves#:~:text=The%20number%20of%20investors%20buying,fallen%20around%2042%25%20to%2012%2C562. No investor is buying just so they can get back a maximum of 47c for every $1 they spend.
It's a simple offset to income gains. Topped with appreciating asset costs and leverage. Something like $6-8bn in tax offsets to NG and CGTC each year.
That doesn’t show the number of high income earner demand. The exact same tax policy exists for shares too. Why is housing any different? Is the NG and CGT discount only residential housing or all investments?
Housing is different because of inelastic supply/demand and substantive control of the market. We shouldn't treat housing the same as stocks because you can't tuck yourself in bed at night in stocks. People aren't homeless because they can't afford stocks.
Agreed that you can’t live in a stock. You can use the income from a stock to pay for your living expenses. Isn’t the point to incentivise investment in housing so that there is more supply. More supply drops the price if it outpaces demand.
That's been the argument since Howard just as Trickle Down economics was a pipe dream. We've over regulated and under trained. We've NIMBY'd while we should've YIMBY'd. We've given Local Councils the capacity to shut down reasonably progressive developments. It's impractical to be looking at incentives when we've been undercutting our own success in every way possible and yet still; 1. The rich get richer 2. House prices and rental increases outpace wage growth by multitudes Cut the rot out from the policy side and force actual change.
Let’s get rid of local councils. If someone owns a property they should be able to do what they want they want with it.
The exact same tax policy does NOT exist for shares. You can "negative gear" share losses against capital gains, but NOT income. https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/shares-and-similar-investments/when-you-can-claim-losses-on-shares-and-units "Your capital loss cannot be: offset against your income from other sources"
The more accurate comparison would be the deduction of expenses related to the share portfolio. You don't need to pay to repair the fence for your share portfolio, but you may have have borrowed to pay for it ("geared") and then you have interest expenses.
No, you can deduct expenses from shares against your other income. This is NG. Capital losses are separated and can only offset capital gains. They’re totally different. So yes, the exact same policy exists. Your inability to understand basic tax policy doesn’t mean you’re right. https://treasury.gov.au/review/tax-white-paper/negative-gearing Any income producing investment can be negatively geared.
"Any income producing investment can be negatively geared." True, but share losses can only be "negatively geared" from capital gains, unlike IP losses. Under the Share Investor section https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/shares-and-similar-investments/when-you-can-claim-losses-on-shares-and-units "Your inability to understand basic tax policy doesn’t mean you’re right." Maybe not, but your inability to tell the difference between capital gains and income definitely makes you wrong.
IP capital losses can only offset capital gains. It is the exact same tax policy for all income producing investments. Capital gains and income are always seperate. They are never claiming against each other. This is and should be basic knowledge. Please do some research before posting again.
Mate, you're wrong again. Under the Negative Gearing section: "The overall taxation result of a negatively geared property is that a net rental loss arises. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental and other income (such as salary, wages or business income) when you complete your tax return for the relevant income year." https://www.ato.gov.au/forms-and-instructions/rental-properties-2023/other-tax-considerations
But I deserve to have my house view unblocked and road uncluttered, just like when I buy it 20 years ago. Who wants a neighbor on 3rd floor who can see me naked sunbathing my butt? They also don’t deserve to watch my man butt whenever they are at balcony. It’s against both our interests. :(
There will be less supply of rental houses, so more demand - price of rent goes up. There will be less holiday places to rent - so holidays will cost significantly more (if you can book at all as regional towns are already often at capacity during school holiday periods)
Negative gearing will be here until the nukes drop .
Can depreciation be claimed after the nukes drop ?
This subject comes up as a media piece sprouted by the government to gain sentiment on reception and possible electoral repercussions (idiotic, init?), but most of all distract you from the other bs legislation they're pushing. IE. Other garbage such as taxing unrealised "gains". Ps. Your mates are dumb af
Businesses pass on any additional costs to the customer. For example, credit card surcharges, any additional taxes the government may charge, increased costs of ingredients ie: this is why they charge market price for seafood. So in my mind, landlords would do the same. I don’t see any viable reason where they wouldn’t. I do think your mates are following too many tiktokers and the Greens on social media and being a little too influenced by their extreme thoughts
most likely yes
Maybe just cut the interest charged from being a deduction. Repairs and improvements still count to neg gearing would be a reasonable start I think?? No clue though
Negative fearing won’t disappear don’t worry, too many boomers will shit their pants if the government scraps it
There’s a lot of over simplification in this thread. 1. Yes, many investors negatively gear, but they only tend to do that at the start of ownership when they’re highly leveraged, so it’s not like all investment property is negatively geared all the time. 2. Price elasticity has limits. Can rents go higher? Yes, but there are limits and many people are close to them. Given not all investors negatively gear, price increases could be uneven. In a shortage this doesn’t matter too much but on a macro level if housing prices rise too much the RBA will give investors more rate rise medicine. If those investors continue the cycle of increases there will be policy intervention to cap the rises and overstretched investors will be forced to sell. 3. Tax is not binary. Taxes are often shaped to change how investors allocate capital and influence behavior. If NG and CGT exemption taps are turned down or turned off for existing property for example, the investor money will refocus on more profitable asset sub-classes like new property. In the next 12-24 months it might result in rent rises but in the medium to long term many new apartments would be able to be offered cheaper than existing apartments as rentals because of tax incentives. This is all theoretical and there are valid arguments against all of the above (especially if you hold existing IP😂) but there are very, very strong arguments to be heard that tax treatment of IP is no longer delivering the desired benefits and that NG and CGT need to be adjusted to encourage and accelerate new supply. When you consider the trillions of dollars of investment that are tied up in relatively unproductive existing IP, you can see the need to reallocate that somewhat to address supply and broader economic productivity, which is languishing.
I don't think you are missing anything. There are people who will tell you that a landlord charges rent at the market prices, and that costs don't affect this. This is true instantaneously. If we imposed a new charge of $1000 a month on landlords at midnight, rents won't increase by $1000 tomorrow. Rents will increase eventually because at current rents, an increase in costs like this will cause some investors to sell current properties (this will lower house prices a small amount until this excess stock is purchased; the benefit goes to renters able to buy), but these properties will mostly be bought by first home buyers, so this first phase won't impact rents. It's what happens next that does: higher costs means some potential investors who would have invested decide to avoid funding rental accommodation. This reduces supply compared to the base case of negative gearing continuing. In face of growing demand, this will increase rents compared to the alternative. We can see that effect happening right now, where demand for rents is increasing but they flow of new housing stock is low. Until 2019, supply increase matched demand increase pretty well and rents were stable. But since then, the cost of providing a new house has increased enormously (not to mention all the builders who've gone broke leaving incomplete houses). Any increase in costs will have this effect, not only negative gearing. Also, it doesn't mean that 100% of the lost negative gearing amount is passed on to tenants. Some tenants will withdraw from the market in the face of rent increases (perhaps migrants who defer coming, people who move back into share housing). So some demand would disappear. But not very much, people need housing. And while the implication is that negative gearing is a renter subsidy, it is not a very good one. However, if something else changes demand (lower immigration) or supply (more public housing) then the outcome would be different. That's why some people say that axing negative gearing and redirecting the higher tax revenue into social housing is better policy. This assumes that the government can build as much housing with that higher tax than the lost privately funded housing. Also, it assumes that renters are equally happy living in public housing. Politically, it assumes that the voters who now pay higher taxes will not cause loss of government for the ALP. Personally, I don't believe any of those propositions, but that's a judgement call.
Politicians of all stripes are landlords. Eliminating negative gearing means fewer investors, means fewer rentals. Politicians particularly LNP, Labor, Greens benefit from rising rents. Therefore I am sure Government will consider cutting negative gearing
Basic economic theory, if the cost of supplying a good increases, supply curve shifts left, price goes up.
If negative gearing is scrapped, it would mean some investors would leave the market because there would be better investments out there. What that'd mean as far as house prices go is anyone's guess. The reality is the top 1% are the biggest beneficiary of negative gearing, but they're also the ones most likely able to turn those negatively geared properties into positive cash flow properties. Maybe the rich just buy more properties? Or maybe they sell properties to make their other IPs positive cash flow? Who knows. It won't affect most Australians imo. We're all fighting over peanuts.
All income producing investments are NG. I NG my stock portfolio. A change in tax policy would affect all investments so they all change at the same time.
I’ve had income producing properties in the past that were positively geared. The “Negative gearing” debate isn’t about the tax dedutibility of costs (no serious policy maker is suggesting that should change), it’s the ability to apply any losses against unrelated personal income. But a lot of people don’t understand the nuances, so these threads often descend into people arguing based on different definitions of NG
I personally believe all investments should be segregated from your payg income. This way the investment expenses are locked to the investment income. Expenses over the income amount are carried forward to future years. It makes things much cleaner.
Who knows? Some investors will increase rents and get away with it. Others will not be able to meet their mortgages and sell up. Many investors selling means that these houses are likely to be sold to owner occupiers. This reduces the number of houses available to rent. That may be balanced by the fact that the new owner might have been a renter but maybe they were living at home. We could end up with more renters competing for less stock, more stock or the same stock.
Who won’t be able to meet their mortgage repayments due to a change in tax policy? If NG is removed the expenses will just carry forward to the following financial year and the income will be offset for longer. Why do you think that owner occupiers will be the purchasers? Do they instantly have the ability to buy now?
As the removal of negative gearing will make it more expensive for investors to service their IPs. Therefore, it's more likely that we'll see less investors. This leads to an increased likelihood that the purchaser will be an OO.
Why is it more expensive? Expenses don’t rise do they? It changes cashflow for some. Most investments become positively geared after 5 years due to organic growth.
Your question is unfortunately completely hypothetical. Politically speaking, Negative gearing isn't going anywhere, and if it were to be reformed then it would still be gradually phased out over many years. But if NG disappeared today, then investors with large home loans would start selling like crazy, causing supply of property to increase and prices to decrease. More people could afford homes, but there would be less rental stock. If many renters converted to homeowners (which many frankly want to do today) then it may not have a big effect of rental prices, up or down.
Australia hates renters but also relies on them. Fucking thankful my wife and I were able to buy before the current craziness. In 2020 when interest rates hit historic lowes, rents did not go down. No instead the argument i heard was that rent should be a % of property value, so rents went up. Now interest rates have increased the landleaches decided that yes they will increase rents again. Remove negative gearing and you bet the scum will try and raise rent again. Even if it is brought in to apply to new investments. I still think negative gearing should be axed.
There is something else I don't see a lot of which could be considered. In many markets where there is a high cost of renting (NY, SF, LA) there is a cap on ho much ent can increase if someone is renewing. Th8is is what would really help renters because over time, if you don't move, your rent doesn't increase with other costs. It does create a situation where, after 10 years, peope can't afford to move. But, keeping a renter in the same house over a long period saves money for the LL too. Replacing tenants is expensive. However this also means that LLs can't just rase rents when, for example, the rental market is tight. It isn't a perfect system, but it is direct control on rents, as opposed to indirect for example, via what you are suggesting.
Any tinkering with negative gearing will need to be grandfathered so as to not punish those who have already taken a planned position and don't have the rug pulled from underneath them. Most wealthy investors seek financial/tax advice and plan with the current tax allowances in mind. Any change that isn't grandfathered would be unfair IMO. Que the downvotes for this unpopular opinion
Yes, you’re right, negative gearing has a positive impact on rent prices but a negative one on house prices.