Society/Culture The housing crisis. How is it fixed?

[Carringbush2010]

Bump.

I posted this on the trutton thread, but think it's worthy of discussion.

The Greens’ policy to end tax breaks for wealthy property investors would:

• Grandfather negative gearing and the 50% CGT discount to one investment property, protecting ‘mum and dad’ investors. People will be able to keep existing negative gearing and CGT discount benefits for one investment property they already own (purchased before the policy commences).
• Scrap the 50% capital gains tax discount for all other assets. The asset base for non-housing assets would be indexed by inflation.
• Any properties purchased after the policy commences, or the second and subsequent investment properties already owned, would not be eligible for these concessions.
• The changes only apply to investment properties.

 

[Demonic Ascent]

Bump.

I posted this on the trutton thread, but think it's worthy of discussion.

The Greens’ policy to end tax breaks for wealthy property investors would:

• Grandfather negative gearing and the 50% CGT discount to one investment property, protecting ‘mum and dad’ investors. People will be able to keep existing negative gearing and CGT discount benefits for one investment property they already own (purchased before the policy commences).
• Scrap the 50% capital gains tax discount for all other assets. The asset base for non-housing assets would be indexed by inflation.
• Any properties purchased after the policy commences, or the second and subsequent investment properties already owned, would not be eligible for these concessions.
• The changes only apply to investment properties.

It's a pretty sensible policy, would like to hear the arguments against that weren't blatant self interest.

 

[Carringbush2010]

It's a pretty sensible policy, would like to hear the arguments against that weren't blatant self interest.

There was a post from GrayRanga about ng building materials that also could have merit. Would need to be studied and researched.

The only thing is ng equates to loss, regardless, so I doubt builders are gonna forgo positive geared materials now (why they're so expensive) for a less roi at tax time.

But it would help with building costs I guess.

 

[leon123]

It's a pretty sensible policy, would like to hear the arguments against that weren't blatant self interest.

It would assist 'minimising' the price acceleration - thats a tick

It would reduce supply for the rental market - thats no good

About 25/30% of households are renters, there will always be a rental market, its a very important market

No self interest here, in a former life, I worked in the social housing industry - im highlighting my interest in affordable housing.

The best things to do: a) minimise interfering in the market; b) ensure sufficient land supply/streamline planning; c) take planning off Council - due to SOS/NIMBY types (as they do stop housing supply); d) go on a long term social housing build (this will take time); e) dont introduce demand policies (which both major parties do)

 

[10571z]

The red tape to build a house needs to be fixed. Its absolutely insane.

From planning, engineering, energy requirements, council etc its a lengthy expensive and ridicules process.


When you buy a block you should be able to build within 2 weeks not 12 months.

 

[Gone Critical]

Bump.

I posted this on the trutton thread, but think it's worthy of discussion.

The Greens’ policy to end tax breaks for wealthy property investors would:

• Grandfather negative gearing and the 50% CGT discount to one investment property, protecting ‘mum and dad’ investors. People will be able to keep existing negative gearing and CGT discount benefits for one investment property they already own (purchased before the policy commences).
• Scrap the 50% capital gains tax discount for all other assets. The asset base for non-housing assets would be indexed by inflation.
• Any properties purchased after the policy commences, or the second and subsequent investment properties already owned, would not be eligible for these concessions.
• The changes only apply to investment properties.

Sometimes I also think it helps to understand the history of NG and CGT in Australia.

NG was introduced in 1936 so nearly 90 years ago. It was dropped for a couple of years by Hawke/Keating in 1985 to 1987 but reintroduced to combat a housing shortage and rising rent.

It was abolished in Sept 1985 at the same time Hawke/Keating introduced a CGT to Australia for the 1st time. Prior to this their was no tax on capital gain of assets. With the GCT they used an indexation formula using CPI to account for the effect of inflation over time on capital gain. In 1999 Howard/Costello changed the CPI/inflation indexation method to the flat 50% CGT discount to account for the effect of inflation.

The 50% method was a much easier calculation and most of the time but not always produced a smaller capital gain. Overall not a big difference though.

Bearing that in mind abolishing NG I don't mind but it probably wont make any real difference as its supply that is the real issue.

The CGT to my mind is problematic. 50% CGT discount for 1st investment property, return to the old indexation system for the non property assets and no CGT allowance for the effect on inflation for any 2nd investment property. I am no expert but to me that makes a 2nd investment property no longer a viable investment for anyone and I would presume would also trigger a massive sell off of 2nd + investment properties prior to the loss of the GCT allowance. You would be mad to hang onto one when you could sell and then reinvest in non property assets which have a CGT discount. People with 1 investment property would also consider selling to avoid what may be a depreciating asset.

Be interesting to see what would happen. At a guess it would open up some property to the market but those renters unable to buy would face a big rental shortage.

My mind says whatever GCT discount you have, and you should have one to allow for the effect of inflation, it should be universal. Different rules for different investments will eventually blow up.

 

[leon123]

Sometimes I also think it helps to understand the history of NG and CGT in Australia.

NG was introduced in 1936 so nearly 90 years ago. It was dropped for a couple of years by Hawke/Keating in 1985 to 1987 but reintroduced to combat a housing shortage and rising rent.

It was abolished in Sept 1985 at the same time Hawke/Keating introduced a CGT to Australia for the 1st time. Prior to this their was no tax on capital gain of assets. With the GCT they used an indexation formula using CPI to account for the effect of inflation over time on capital gain. In 1999 Howard/Costello changed the CPI/inflation indexation method to the flat 50% CGT discount to account for the effect of inflation.

The 50% method was a much easier calculation and most of the time but not always produced a smaller capital gain. Overall not a big difference though.

Bearing that in mind abolishing NG I don't mind but it probably wont make any real difference as its supply that is the real issue.

The CGT to my mind is problematic. 50% CGT discount for 1st investment property, return to the old indexation system for the non property assets and no CGT allowance for the effect on inflation for any 2nd investment property. I am no expert but to me that makes a 2nd investment property no longer a viable investment for anyone and I would presume would also trigger a massive sell off of 2nd + investment properties prior to the loss of the GCT allowance. You would be mad to hang onto one when you could sell and then reinvest in non property assets which have a CGT discount. People with 1 investment property would also consider selling to avoid what may be a depreciating asset.

Be interesting to see what would happen. At a guess it would open up some property to the market but those renters unable to buy would face a big rental shortage.

My mind says whatever GCT discount you have, and you should have one to allow for the effect of inflation, it should be universal. Different rules for different investments will eventually blow up.

You've nailed the issue perfectly CG - particularly the last sentence.

Ill come from a renters perspective, the supply of rentals is fundamentally sourced from small investors, if you have an uneven playing field, these investors would readily switch to additional super/shares etc - then where would the supply come from

 

[Demonic Ascent]

You've nailed the issue perfectly CG - particularly the last sentence.

Ill come from a renters perspective, the supply of rentals is fundamentally sourced from small investors, if you have an uneven playing field, these investors would readily switch to additional super/shares etc - then where would the supply come from

Public housing?

 

[Demonic Ascent]

It would assist 'minimising' the price acceleration - thats a tick

It would reduce supply for the rental market - thats no good

About 25/30% of households are renters, there will always be a rental market, its a very important market

No self interest here, in a former life, I worked in the social housing industry - im highlighting my interest in affordable housing.

The best things to do: a) minimise interfering in the market; b) ensure sufficient land supply/streamline planning; c) take planning off Council - due to SOS/NIMBY types (as they do stop housing supply); d) go on a long term social housing build (this will take time); e) dont introduce demand policies (which both major parties do)

Fair call but if there are fewer rental properties you would presume it is because those properties are now being occupied by owners - so those people are no longer in competition with other renters for rental properties.

There does seem to be a risk of rental shortage but let's say we scrap negative gearing on investment properties but keep the CGT discount (as there seems to be a genuine reason for it) that may help creat disincentives for property investors which would help reduce demand and stop the price escalation. It won't fix the housing issue in and of itself but is one avenue to help ease demand.

The other view is that it is short term pain for long term gain (if CGT discount is removed as well) as it will lead to less demand and greater supply if current investors start selling off their existing properties. If it is phased out over say 10 years while there is investment in public housing it may not create the massive rental shortages?

 

[Seeds]

You've nailed the issue perfectly CG - particularly the last sentence.

Ill come from a renters perspective, the supply of rentals is fundamentally sourced from small investors, if you have an uneven playing field, these investors would readily switch to additional super/shares etc - then where would the supply come from

Wrong. Supply of houses come from land releases and is mostly determined by the government.

If investors dont buy houses from this largely fixed supply determined by government for purposes of renting to others then house prices collapse and renters can now buy these houses instead. Investors buying multple houses is a problem. We need to stop them.

 

[Seeds]

Solution to fixing housing crisis:

Governments need to release more land

Construction costs need to come down: reduce building regulations and red tape and bring in more immigrants of working age to build homes at lower costs. Also need more immigrants to work as tradies.

Stamp duty needs to be replaced by land tax so empty nesters are encouraged to downsize freeing up large houses for younger families. Changing the pension asset test to include ones home will also help with this.

Disincentize people from owning multple homes. I.e. remove negative gearing, remove capital gains discount on investment properties. Landlords are the problem. Not the solution. They are a drain on society.

 

[leon123]

Wrong. Supply of houses come from land releases and is mostly determined by the government.

If investors dont buy houses from this largely fixed supply determined by government for purposes of renting to others then house prices collapse and renters can now buy these houses instead. Investors buying multple houses is a problem. We need to stop them.

Many things incould respond to the above, but, ill answer slightly differently.

Approximately 20% of all households will never be able to purchase a dwelling. Its simply a function of income. This outcome has been around forever.

Without investors, there would be no supply of rental stock.

From a public policy perspective, a policy to encourage ownership can impact the rental market, which typically are more financially vunerable. Policies should encourage supply, not reduce.

If cgt discount was removed, simply, investors would move to other investment classes, this would reduce rental supply, impacting the most vunerable households ie hhs in the lowest 20% income distribution

 

[leon123]

Solution to fixing housing crisis:

Governments need to release more land

Construction costs need to come down: reduce building regulations and red tape and bring in more immigrants of working age to build homes at lower costs. Also need more immigrants to work as tradies.

Stamp duty needs to be replaced by land tax so empty nesters are encouraged to downsize freeing up large houses for younger families. Changing the pension asset test to include ones home will also help with this.

Disincentize people from owning multple homes. I.e. remove negative gearing, remove capital gains discount on investment properties. Landlords are the problem. Not the solution. They are a drain on society.

I can tell you for a fact seeds, across victoria, establsihed urban area and greenfield, there is not a land supply problem. On top of this, across victoria, there is at least 3 yeras supply of land with planning permits allowing for subdivision... this is at historic highs

Your stampy duty suggestion is sensible, it will facilitate housing churn. But, in the short term, prices will increase to the stamp duty value, but stabilise post.

Landlords arent a drain on society, they provide a valuable role in providing rentall stock... and yes, society, yes us, should pay more tax for increased production of social housing... that does put downward price pressure on the private market

 

[leon123]

Fair call but if there are fewer rental properties you would presume it is because those properties are now being occupied by owners - so those people are no longer in competition with other renters for rental properties.

There does seem to be a risk of rental shortage but let's say we scrap negative gearing on investment properties but keep the CGT discount (as there seems to be a genuine reason for it) that may help creat disincentives for property investors which would help reduce demand and stop the price escalation. It won't fix the housing issue in and of itself but is one avenue to help ease demand.

The other view is that it is short term pain for long term gain (if CGT discount is removed as well) as it will lead to less demand and greater supply if current investors start selling off their existing properties. If it is phased out over say 10 years while there is investment in public housing it may not create the massive rental shortages?

Re your last paragraph, with increasing population, the demand for rentals increase. Therefore you need additional rental stock. If investment classes arent treated equally in the tax system, there is no incentive to invest in housing. There will always be a segment of society who can not afford to purchase. Social housing provisiion can alleviate this demand, but demand to large for only public sector provision

 

[Carringbush2010]

I am no expert but to me that makes a 2nd investment property no longer a viable investment for anyone and I would presume would also trigger a massive sell off of 2nd + investment properties prior to the loss of the GCT allowance.

I think that's the idea, to increase supply by selling and further, way of disincentivizing property as an investment in future.

People with 1 investment property would also consider selling to avoid what may be a depreciating asset.

Not sure there'd be much depreciation if any.

Whatever tax policy / concession has been around property, by and large property prices increase (with some minor dips from time to time)

 

[H00t]

Landlords arent a drain on society, they provide a valuable role in providing rentall stock... and yes, society, yes us, should pay more tax for increased production of social housing... that does put downward price pressure on the private market

Landlords are absolutely a drain on society. Them existing only increases the difference between the haves and the have nots.

So many more people will be unable to afford houses purely due to landlords greed and the continued commodification of property.

Buying a property is only getting harder and harder with each passing year. Having to pay a huge chunk of one’s paycheque each week just for a roof over one’s head makes it that much harder to afford property.

Without landlords driving up rent and house prices people would have so much extra money to spend at businesses or on hobbies which would also serve to revitalise the many industries that are currently struggling because people are poor.

 

[Seeds]

It's a pretty sensible policy, would like to hear the arguments against that weren't blatant self interest.

A few arguments:

Why keep 50 percent discount rate for one investment property. It should go for all. Its perverse and needlessly complex.

While i agree with removing the 50 percent discount rate for equities. Its a massive tax increase all at once and would immediately plunge the economy inot a very deep recession. A policy like that needs to either be introduced gradually over a decade or come with an offsetting (atleast partially) income tax cut to balance it.

 

[Seeds]

I can tell you for a fact seeds, across victoria, establsihed urban area and greenfield, there is not a land supply problem. On top of this, across victoria, there is at least 3 yeras supply of land with planning permits allowing for subdivision... this is at historic highs

Your stampy duty suggestion is sensible, it will facilitate housing churn. But, in the short term, prices will increase to the stamp duty value, but stabilise post.

Landlords arent a drain on society, they provide a valuable role in providing rentall stock... and yes, society, yes us, should pay more tax for increased production of social housing... that does put downward price pressure on the private market

A price rise to offset stamp duty is not a price rise at all to the buyer. Any buyer. And thats what matters. Its replacing one cost with another from the buyers perspective. Plus i dont think the price rise would completely offset the stamp duty loss in the short run and certainly not in the long run as it leads to less empty bedrooms and more retirees moving from the inner cities which implicitly boosts housing supply in the places young workers need them.

Im not a Victorian and so dont have much knowledge of Victorias land supply situation. If there is lots of greenfield land then what is holding up converting it into housing? Is it lack of construction workers or regulation red tape issues? Those are also points I raise. Its the combination of all three that need to be fixed to bring on more supply.

Landlords in their current magnitudes are a drain on society because they are an unnecessary middle man taking away labour resources from more productive uses. We have way too many rental properties that would be owner occupied instead if prices were more reasonable and therefore way too many people playing landlord and living off rent (and housing capital gains) rather then doing 9-5 jobs that provide needed services to society.

 

[Seeds]

Many things incould respond to the above, but, ill answer slightly differently.

Approximately 20% of all households will never be able to purchase a dwelling. Its simply a function of income. This outcome has been around forever.

Without investors, there would be no supply of rental stock.

From a public policy perspective, a policy to encourage ownership can impact the rental market, which typically are more financially vunerable. Policies should encourage supply, not reduce.

If cgt discount was removed, simply, investors would move to other investment classes, this would reduce rental supply, impacting the most vunerable households ie hhs in the lowest 20% income distribution

when you encourage increased ownership its renters that are leaving the rental market to become owners. One less house for rental supply yes but also one less renter for rental demand. The net impact on the rental market is zero. Its right wing misnformation to say increasing ownership is bad for the rental market.

If cgt was removed investors would shift to other investment classes? And so they should. Thats one of the goals. Other investment classes are usually productive assets which increase net income for society rather than lead to zero sum gain outcomes as housing investment does. To make australia more prosperous we need investment money to be investing in industrial expansion and new technologies. Houses should be a product you buy from your wages and capital income. They should not be an investment in themselves.

 

[Mr5000]

There is no housing crisis there is a house crisis.

People just need to be told you will never own a house, apartments are your future.

 

[leon123]

when you encourage increased ownership its renters that are leaving the rental market to become owners. One less house for rental supply yes but also one less renter for rental demand. The net impact on the rental market is zero. Its right wing misnformation to say increasing ownership is bad for the rental market.

If cgt was removed investors would shift to other investment classes? And so they should. Thats one of the goals. Other investment classes are usually productive assets which increase net income for society rather than lead to zero sum gain outcomes as housing investment does. To make australia more prosperous we need investment money to be investing in industrial expansion and new technologies. Houses should be a product you buy from your wages and capital income. They should not be an investment in themselves.

Yep, i hear ya, but, ill give you a problem to solve...

So i leave home to go to work, uni etc, where do i live

Im old, just retired, earned not many dollars, where do i live

Im middle aged 3 kids, low moderate income

Im a young urban professional, moving around for my career, state to state, where do i live

Im selling a house, looking for another location, but cant find yet, where do i live

Etc

Be aware, this demand, cant be totallly satisfied by social housing... well it could, but thats another story, which is t pallitable in capitalist based democracy

Above examples illustrate the need for private rentals

If you can solve the requirement for private rentals, then i can agree

 

[leon123]

Landlords are absolutely a drain on society. Them existing only increases the difference between the haves and the have nots.

So many more people will be unable to afford houses purely due to landlords greed and the continued commodification of property.

Buying a property is only getting harder and harder with each passing year. Having to pay a huge chunk of one’s paycheque each week just for a roof over one’s head makes it that much harder to afford property.

Without landlords driving up rent and house prices people would have so much extra money to spend at businesses or on hobbies which would also serve to revitalise the many industries that are currently struggling because people are poor.

second paragraph is a little silly. Repeat, you are saying that house prices are being fundamentally driven by landlord greed.

Housing prices are a little more complex than that.

 

[faible]

Why keep 50 percent discount rate for one investment property. It should go for all. Its perverse and needlessly complex.

It would only apply to those properties purchased prior to the change.

Basically your 'mom and pop' investors with 1 investment property don't miss out on something they already own, larger scale investors and new investors do.

It's a practical way to bring in the change.

 

[Billy ray]

reduce the 50% discount by 2 percentage points a year for 12 years to get it to 26% and 1p.p. the last year to get it to 25%.
its slow but at least it signals the change to investors, like they did the super guarantee rate over a long period
thats one simple thing they could do
would it make a difference - maybe, maybe not much but eventually it would if it was 25% discount

 

[TheEscapeClub]

The Australian Property Institute has released a comprehensive paper into housing affordability.

50 years ago, a property in Melbourne required 3.5 times the average annual income to purchase, fast forward to now and it's 8.4 times.

I have an issue with the language being used and it really needs to be updated to reflect the times.

50 years ago, the bank would lend based on the male householder's wage and them having a 20% deposit. Households were predominantly single income. Dad working, mum at home rearing the kids, maybe a few hours of work if they were lucky enough to find something during school hours or they'd volunteer at the school canteen or the like.

That single income was also the entire household income.

Fast forward to now and that household income is now typically two people with full time careers contributing.

So, is it now 8.4 times the average annual income to purchase a property or should it be 4.2 times the average household income? The former just gives young people anxiety and makes them either panic or resign themselves to never being homeowners if that's what they want.