No matter what happens in housing policy in Australia, it seems homeowners always win. Always.
Labor’s “Help To Buy” housing policy, which will enable 10,000 low- and middle-income applicants a year to buy homes, with the Commonwealth taking up to 30% equity in existing homes and 40% in new homes, will only add to demand for housing.
Not significantly — 10,000 households is well under 10% of the number of first-home buyers alone in 2021, and the policy is solidly aimed at the low end of the market. The highest maximum cap will be in Sydney for $950,000. But it introduces — or reintroduces — the federal government into the housing market, in a way unseen since Paul Keating sold the Commonwealth Bank of Australia (CBA) in the 1990s.
You had to pay interest to the CBA, but you won’t have to under Help To Buy. Nor will you have to pay rent. But the government will keep the upside of its chunk of the property if it appreciates. So there’s a new source of interest-free capital in the housing market, which can borrow as much as it likes and pay far less on its borrowings than any bank.
Labor’s proposing to introduce this market distortion because its previous policy was to reform the existing, far larger market distortion, which is negative gearing, and direct it entirely at new home purchases, which would have incentivised new dwelling construction. Thanks to a scare campaign from the Coalition, the property sector and the media, that fell by the wayside.
Instead, we have a distortion to offset a distortion — 10,000 low- and middle-income earners will get help to compete against taxpayer-subsidised housing investors. It’s a lift of a scheme urged by the Grattan Institute earlier this year, but with the addition of the extra incentive for new housing purchases, which will make some marginal difference on housing supply.
The winners, of course, are homeowners who will have even more money chasing housing stock. The fact that the major property interest groups, the Housing Industry Association and the Property Council, welcomed the policy illustrates the extent to which this is a win for vested interests. But community housing sector peak bodies also welcomed it as helping to address the housing affordability crisis.
This is what economic policymaking is reduced to in Australia: vested interests benefiting from bad policy prove too powerful in the quest to remove that policy, so we introduce another bad policy — though one by no means as expensive or iniquitous — to combat its effects. At least it’s low- and middle-income earners benefiting from the distortion for once.
It’s a recognition by Labor that taking on vested interests is a sucker’s strategy for getting elected, that it can do more good by making overall policy frameworks less bad than by actually trying to get them to work well. The media and the commentariat shouldn’t complain about the lack of vision and dearth of big ideas from Labor — they were party to what was done to a reformist Labor program in 2019.
Instead, this is what you’ll get — unambitious, least-worst-in-the-circumstances, it-could-be-worse policy. Still, at least it’s motivated by a recognition that there’s a housing affordability crisis in Australia — a reality that has yet to dawn on the Coalition.
I’m over sixty, about to retire, and I’ve got little apart from two hundred thousand in Super. I don’t own a house, rentals are well past what I can afford, and I’m screwed if – when – I lose the place I’m currently in. I’m not alone. I’ve worked the bulk of my life, but the costs always were beyond me, and a failed relationship and a lost job (thanks, GFC) has meant that I was never in the market. It doesn’t matter if Labor graciously pay 40% of my initial cost; no bank is going to touch me. And, as you say, Keane, available rentals will dwindle to non-existence. Both major parties have thrown me and my friends to the wolves. I’ve never been more scared. Or more angry.
Frank, I imagine there’s plenty of support for you amongst Crikey’s readership. So first job is to get rid of the current lot. Then we have to hope we end up with either a Labor govt emboldened by a landslide to take stronger action; or a Labor minority government forced by The Greens to take stronger action.
Vain hope. How many Labor and Greens members are invested in the “property market” and thus faced with personal losses (or reduced expectations) if anything that would benefit people like Frank actually got to a vote on the floor of the house?
well, Frank, welcome to the crowd. You will get the Age Pension even with that modest amount of super, but of course you are not yet old enough to be eligible, even before the entry age was incrementally raised (which btw is sort of rational and logical. i digress, but did you realise that although the Age Pension age is incrementally increasing, the ABS unemployment data REMAINS set on an age cohort of under 65yo thereby not including unemployed people over that age (presumably 60yo for females)).
After 50 years of constant work, espec in the last 25 years – i worked harder as i got older it seems – i ended with literally nothing after the fall-out of two bad marriages, and subsequent failure of my 15yo business. I lost any property after the marriages, and the small amount of super went into trying to keep my business afloat.
I then moved overseas because it was the only possible realistic way to survive on a single Age Pension, such as it is, and no house: so far that has worked relatively well (although new family responsibilities have made it more marginal). You don’t need very much to ‘buy’ a house, even with recent large price increases (but i didn’t even have quite enough for that (i came with only about $20,000 all told – and of course no bank would now touch me for any loan).
But i would suggest, in your case, it is also by far the best and most practical solution.
Thanks. I’m already on the pension. By the way, where did you end up?
Ditto, Frank. I’m 57, but being a woman a therefore having had the requisite time out of the workforce for child bearing and caring for elderly parents, I have about half your super and can’t see retirement ever being an option. I’ve worked since I was 14 and 9 months apart from these time outs for family responsibilities. Couldn’t afford a house on my sole income. Looks like I’ll die working. I’m terrified, too.
homeowners always win.
Not so! It’s investors and speculators who always win.
Apparently, my house is now worth ten times what I paid for it years ago. What good does that do me? It’s still the same house. If I sell for a high price, I have to buy another at a high price. Meanwhile, how can my kids afford a house?
Which is precisely why we need to massively reduce the impact of the Rent-seekers on the market.
That thought crossed my mind as I read Bernard’s opening paras. A person who owns a few houses is not necessarily a homeowner. We need policies that benefit the family homeowner/occupier – and that benefit needs to come right out of the profits of property “investors”, speculators – whose mere ownership of second, third (and beyond) houses is keeping prices high. They are waiting passively to screw unending stream of eager new owner/occupiers entering the market, as well as people like Frank (see Frank’s post above). In the economic sense they are parasites – because the housing market is set up to enable parasites and create homelessness, mortgage stress and economic servitude.
The apologist – on both ‘sides’ – would claim that it the sheer generosity of multiple house buyers using NG that permits renters the joy & luxury off paying off their mortgages, whilst they also cop tax relief.
Such altruism!
Hooray for Ponzi schemes!
Yeah, It legitimises the existing system – where policy in this area is in the hands of those would would pull the ladder up behind them.
Conservatives and “the left” alike persisting with selling us trickle down nonsense.
Nah, sorry- homeowners it is. They use their unearned equity from rising house prices to finance other things, so they go ballistic if there is even the slightest chance of housing prices falling- and quite a few use it to give the kids a loan towards their first house.
Homeowners are guilty as charged, and the reason no political party will do a damn thing about housing prices. Two thirds of the electorate would lynch them.
Perhaps someone with more up to date figures could check but, traditionally about one third of households own the property outright.
Another third have mortgages – the more recent ones the more substantial because artificially low interest rates sugar coat the danger of sky high prices.
The rest are renters who not only are at the mercy of short term leases but the vagaries of those who buy-to-rent enabled by negative gearing.
This large group have little stake in the stability of a system which has systematically screwed them and could become dangerous if pushed just a little bit further.
In moderation…who knows why??? Will have another go.
A bit harsh, Bernard…what else is left for Labor to do? I notice you don’t have any answers. Of course anyone with more than half a brain knows that negative gearing and capital gains tax should be abolished, but most of the voters just don’t accept that as a ‘winning’ solution. It’s all about money and greed, and those who are disadvantaged by these said policies just don’t understand the fact that they are paying with THEIR taxes and rents to make housing investors richer
We need supply side solutions. Or a great big housing market crash.
Yay for the latter.
The former is a fudge as AA demonstrated with that ludicrous, rigorously focus-grouped brainfart.
Falinski’s hang up. Broken record. Love to see him removed from Mackellar.
A significant “empty tax” on deliberately empty investment houses might loosen up the supply of rental homes and remove the financial incentive to keep houses empty if the tax exceeds the capital gains rise
How about including part of the family home in the pension asset test?
Yep, and taxing say half the CG when downsizing in retirement, too. Would certainly concentrate peoples minds better when doing their Super maths…
Yes, this is a big under-the-radar factor in the supposed ‘supply shortage’ and ‘rental squeeze’ sub-crises…I’d really like to know just how many deliberately empty investment CG/tax vehicles there are in Australia. (Tens if not 100+ of thousands by now, would be my guess.) Does anyone know?
One estimate in mid-2021 (based pretty accurately on utility/water useage metrics) for Sydney alone was …60,000. Sixty thousand deliberately empty speculative CG ‘tulips’….posing as basic human rights necessities, to harvest the regressive tax breaks and other non property-owning, taxpayer subsidised, middle class welfare handouts.
Not forgetting….that the ONLY reason these insane tribally-subsided tax breaks exist at all…is to generate new stock for the tribe. Right?
Sixty thousand or whatever it is…investors who have been ripping us off by accumulating subsidised portfolios and then dishonestly choking supply like this need to be exposed and metaphorically pelted in the town square with their own ponzi-pumping mortgages.
In 2020 in Melbourne it was around 70,000 empty dwellings, off-the-rental books. Despite Victoria’s 1% vacant property tax…self-reportable, of course. Of course.
Just like the ‘supply side shortage’ was always cynical tactics to leverage ever more nauseating middle class welfare concessions, the sudden ‘rental crisis’ – as interest hikes loom – is also largely artificially-hyped industry sleight-of-hand, this time designed to smokescreen gouging of tenants, desperately to service their over-leveraged property/portfolios.
Property speculation has always been a historically repellent human affliction, a weeping scab on our human body politic. But Australia since Costello has taken it to noxious new depths.
Pray tell me how that works if these “deliberately empty speculative CG” tulips” are not earning income? No rental income = no deductions. The property must be rented or genuinely available for rent.
Well, that’s easy enough to engineer. In Melbourne, the vacant property tax is self-reported. ‘Reasonably available for rent’ is laughably abstract. Most properties simply demand absurdly prohibitive rents, deposits, terms and conditions. If carry out rolling renovations. Or repeatedly place and remove properties on sale.
The over-arching point is that no-one is especially keen to police anything that might stop all this. Not governments, not owners, not landlords, not State Treasuries, not agents, mortgage brokers or banks. Only renters and would-be first home buyers want the systemic corruptions highlighted and rectified.
We are, literally, economic hostage to failing housing market tyranny.
As for deductions/losses…there is a long and ignoble tradition of writing off all sorts of stuff as investment housing loss. Tightened over the years, but again the boom in renovations has been welcomed by all as a key employment contributor…no-one is scrutinising NG too ferociously.
Not sure you understand Negative Gearing at all. The Negative portion means that your total expenditure exceeds the income you receive. Just on Cash deductions alone, most Investment Properties are Negatively Geared. Yes there are some Non-Cash deductions but they need to be substantiated. Negative Gearing is always looked at closely by the ATO. BTW. Renovations are only claimable as Depreciation deductions over a long term. You can’t just write things off without substantiating deductions. The ATO is well aware and on the lookout for bogus claims.
BTW. Negative Gearing is not “at the taxpayer expense” rather it is income tax foregone by the Government on the income. By the time you factor in the actual cash flow losses each year, disposal costs and the CGT when you ultimately realize the property, the returns aren’t too flash in most cases. Corporate tax is the area that needs reform.
You also seem to be under the misapprehension that Property only increases in value. I have seen plenty of investors lose extensively on property. They are taking a risk to create wealth but, like any investment, success is not guaranteed.
Yes I understand NG perfectly well. We can argue all day about how closely the ATO monitors it. That body isn’t exactly famed for its surfeit of auditory resources these days, maybe you noticed. But anyway I know several long term serial gearers who regard the (very rare) instances of lost disputes/ corrections… as simply the cost of doing business. And yes, sometimes properties lose value. Unlike many modern day investors I’m old enough to remember 89-91. But manifestly that has not been the aggregate over the last couple of decades, and we are talking about the housing market aggregate.
As for the revenue losses? Of COURSE they are borne by the taxpayer. Roads and hospitals and schools and services all still cost the same. It’s perverse that those who have accumulated the biggest property portfolios – the best of the systemic exploiters – since 99 have been able to contrive to do so with net tax minimisation as a happy parallel component of it. The fact that it doesn’t always pan out on every individual investment doesn’t negate the overall net revenue impact, which was, what…13b billion or some such in 2020. Collecting that and redirecting those tax write-off incentives to small business (say) would be my instinctive preference. Or yep, maybe corporate tweaks. Much more authentically productive. You gotta collect revenue from somewhere!
As I said Lex I have no in-principle beef with NG as a powerful investment incentive tool. But the settings have to be efficient.
I know very well how much the ATO check NG on returns (which is why I keep raising it. It’s far more than you think) and remember the market way before 1989. As I said, Corporate Tax Reform is needed to make up any shortfall in revenue. Roads, hospitals and schools are NOT directly impacted by your, perceived, NG tax bias. The Feds can easily divert funding to these areas but they won’t. They prefer to waste Billions on unnecessary military and other pork-barreling expenditure instead. They could also rationalize the CPS into something efficient and productive to reduce expenditure.
Because of Australians insane love of property, the building industry is a heavily subsidised one in so many ways and altering NG would impact that extensively and have significant economic impacts and lower the level of housing available in reality.
I’m not a fan of Property or NG in general per se but I understand why it’s there and it’s impact to the economy as a whole.
Again, NG I can live with, with tweaked settings. The CGT rebate combined with it is, simply, fiscally insane.
Negative gearing/property investment etc can be DIRECTLY subsidised by taxes… It is called “rent assistance” for social security beneficiaries. Construction of low cost public housing with the previous “rent to buy” schemes were a more cost effective way to solve the housing affordability crisis. At the moment investors get the benefits of negative gearing, 50% capital gains discounts AND rent assistance subsidies ALL of which are directly related to either tax receipts or tax expenditure.
Rent assistance payments are often overlooked in these discussions.
Why not just keep it simple stupid and make property owners pay fair tax in the effing first place???????
Our bolted-together systemic-insanity tax framework is ramshackle and inefficient enough as it is.
so yes…i agree your transfer mechanism would be infinitely better.
Most of what you have listed would be easily found under a standard ATO audit. Claiming deductions that significantly outweigh the corresponding income raises an automatic flag to the ATO. This is in addition to the usual targeted reviews of claims for property deductions. Sorry, not buying this “ghost rental” theory as a cause of the current housing shortage.
Also lex….a lot of new stock is empty because it isn’t really FIT to live in. New may be, but functional amenity is abysmal, supporting local infrastructure non-existent, construction, safety and design iffy, and maintenance and financial stability and robustness dubious. Because…they are primarily tax & CG vehicles.
Tenants are a pest who just get in the way of CG mobility.
None of that has anything to do with availability. Urban sprawl has always taken a while for infrastructure to catch up. This also doesn’t support the “CG Conspiracy theory” either. This was first reported some years ago (to attempt to blame foreign investors) with zero data or evidence to support same. It’s an Urban Myth.
I have conducted Discounted Cashflow analysis of actual Geared Property investment returns on more properties than I care to remember and I can assure you that when you include all the costs involved of buying, owning and selling (and I mean ALL costs and including borrowing, non-cash deductions etc) the returns on Investment Property are not what people think they are. The headline amounts look great but in reality, there are far better investments after cash flow losses over the years are taken into account.
Yes, that may well be so for knowledgeable professional investors with plenty of access to investable capital that doesn’t have to be secured against a property, but the point about the housing market over the last two decades is that the insane capital gains haven’t been driven by rational return analyses like yours. The nature of the tax changes since 1999 and the wilful flood of cheap credit – and the banks’ rapacious opportunism – has made housing an investment strategy accessible to vast numbers who just see the headline numbers. Your implied point is dead right: most housing investors are going to end up bit hard. But the professional minority and the true Asset Class who gauge and manage their balance sheets, entry and exit points, costs and tax equations…won’t.
That’s pretty much the functional definition of a Ponzi.
I don’t understand your sanguine dismissal of the impact of vacant properties in this. The rental peak bodies reckon the shortfall at the moment is 200,000 or so as a minimum. I’m happy to accept those 2020-2021 numbers (CoreLogic I think) as fairly close (no ‘myth’, I have eyeballed many of the Sydney ones just driving around places like Chatswood, Canterbury corridor, Liverpool, Stratty etc). That alone is 130,000. Brisbane and SE Qld may be worse. What characterises them is their blatantly ‘afterthought’ attitude to actual tenancy; to being conceived, financed and built without any genuine priority eye for sustained rental return ie amenity. A critical causal outcome of their clear primary role as abstract tax/CG vehicles is the hopelessly broken link b/w real supply and demand. It’s like all the inner Melbourne flash apartments. They’ve taken advantage of all the allegedly ‘stock increasing’ housing market measures but that serviced ‘investment demand’ has too often provided stock that’s not fit for real housing market demand. The policy settings are failing dismally because they are targeted at – and now helplessly ensnared by – an abstract, yes, a ‘ghost’ housing market, not an actual one.
It’s not a ‘conspiracy’, it’s just an unintended (though entirely predictable and predicted) distortional consequence of rubbish investment settings. And why is it that no-one wants to do a proper housing stock audit (clear up this ‘conspiracy’ urban myth once and for all), or even talk about ‘housing stock’ honestly? Well, because a) the implications for the entire economy are dire; b) we’re all a bit complicit; c) the last thing the Ponzi participants can afford is for us to ‘stop building new inappropriate stock’…and d) it’s part of an now-unavoidable economic catastrophe, waiting to descend. The scale of housing market dysfunction will only become clear when it does.
But I readily concede I have been arguing this for many years now Lex and never been right yet! I’m either a stopped clock, or just a fast one. Either way, I just cannot see how this house of cards won’t fall. Soon. Unless, perhaps, we supercharge immigration as we’ve never done before. Which btw I am all for. Chrs.
The Circle Game – as long as the ‘book’ price rises + a modicum of inflation (anything over 3-5% is gold from the sky) the asset value (w/o CGT) as collateral increases to allow borrowing for other purposes – usually more NG property.
And the elections, they go round and round
And the painted pollies go up and down
We’re captive on the carousel of debt
We can return if we would only look
Behind, from where we came
Rather than go round and round and round, in the circle game.
Apologies to Joni Mitchell
yup. Joni got it.
True but what about the many businesses premises which are closed and never for sale. This is property speculation commercial style. Maybe they are just waiting to be rezoned.
It’s a huge feature of High Streets in inner city suburbs. Stratospheric rents charged to struggling small business, with commercial landlord near cartel-collusion; price bricks & mortar commerce out of our city village hearts, then demand these prime locations be rezoned to residential, to Ponzi-filch cashed-up Hipster pockets.
The same model applies in the regions when Coleworths builds a mall – usually greenfield – and charges inner city rents for a 1,000 sqmt cubbyhole + secondary supply charges for utilities, a/c and security.
Meanwhile generations old, real stores in the main street go broke, unable to compete with cartel gouged prices and the real killer is the missing pedestrian traffic, which drove out to the megaplex.
And those old businesses treated their local employees better, trained them better, gave them workplace conditions etc that allow them to look after their sick kids/parents/selves better. They sponsored the local fetes/sports/refuge with more than just transactional wads of cash + branding opportunity, they got involved in local politics, they kept the street outside their shop nice and they granted their poorer customers a bit of local slack. If their business did OK and they did buy a few local rentals, they made far better landlords than ColeWorths Managed Property Trust # 423, too. They saw employees as people not input units, their businesses as community-building assets not ATM’s, and houses as homes not tulips. Generalisation, sure, but YGTD.
Why on earth did anyone ever think neolib ‘economics’ – age-old systemic naked greed – would ever turn out any different?! It’s not as if lotsa smart economists and political scientist and experts etc didn’t warn us at along the way…
“The media and the commentariat shouldn’t complain about the lack of vision and dearth of big ideas from Labor — they were party to what was done to a reformist Labor program in 2019.”
You’re right, Bernard, but they complain anyway.
Home ownership is not the issue. In Europe many people remain renters all their lives and are quite happy doing so. The difference is that tenancy laws protect them from those landlords who see property ownership as the road to riches.
Our tenancy laws protect unscrupulous landlords who decide that they can screw more out of their tenants because rental homes are so scarce.
In a decent world, people who rent rather than buy would not be disadvantaged to the horrific degree that they are in Australia.
Here we think that if you haven’t made a start on your property portfolio before you’re 30, you’re either stupid or lazy; an attitude fostered by successive governments whose members live in such a rarefied atmosphere they’re incapable of imagining anyone who lives just on their weekly salary or pension and doesn’t have a nest egg or wealthy parents to rely on.
That alone is the distortion in our home ownership model: the idea that having a roof over your head is contingent on whether your landlord is a bastard or not.
Nice.
The difference is also that they have families who own the rental properties and see the rental as the benefit, not the potential profits in a future sale. Also, apartments are built that are good quality and which can house families.
We could kind of replicate this if institutional investors were encouraged, maybe even forced, to build good quality housing for rent for life tenants. The most obvious institutional investors to be encouraged through tax breaks and maybe some compulsion are super companies. Super companies could and should do this on a major scale, with assistance from federal and state governments. Apartment blocks that are liveable, that is not high rise, built of good soundproof material, able to house families, and with gardens and communal areas available, should be built and made available on very long term leases. But then, that might disrupt the supposed ‘mums and dads’ property investors ie greedy a***holes, and that just wouldn’t do.
Spot on with your first point, Capra.
The euroids had centuries of turmoil due to lack of spare property vs population until the Industrial Revolution changed the equation for ever.
The pfennig/groschen/centime finally dropped in the 20thC that security of tenure was the single greatest change to the circumstances of the majority which would ensure the protection of the rich.
Not least because it means that the workers, and most importantly staff, servants & cleaners can live within a relatively short distance of where they are required.
In Holland, Germany & Skandiwegia apart from direct, state financed housing for the lumpen, most middle class people live in co-op/quango/mutual benefit society (once called building societies in UK & Oz, now credit unions here), housing with security of tenure for life which often extends, depending on the specific group, to extended families.
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