Negative Gearing – Why Boomers and Gen X Need to Let It Go

A blog I enjoy, but don’t visit often enough, is The Preston Institute. The author, PrestonTowers, has qualities I appreciate, including insight and quirkiness. The piece I am republishing today was written a couple of weeks ago. PrestonTowers’ analysis of negative gearing – with lived experience – is definitely worth reading.

The Preston Institute

There’s been a great deal of chatter about negative gearing in the wake of the new ALP policy in relation to the tax break. It’s a brave thing for the ALP to take on a policy instrument that is essentially middle class welfare, making it easier for those with some means to get into Australia’s wildly over inflated housing market. But it’s a necessary move, in order to address a gross generational inequality and help out the Australian construction and steel making industries.

In terms of the issue of negative gearing, I am part of the audience being pitched to by both major parties. I am someone who uses negative gearing. As I wrote in my post about selling my old flat, I have, for the first time, bought somewhere purely as an investment. I also – completely by chance – have fallen into the pattern that the ALP want investors to follow, as in purchasing a new property. Hence I will be able to take advantage of the taxable reduction afforded by depreciation on that new property, as well as other benefits that will come with the reduction of my taxable income. Reflecting on the process of buying the new property, I can see the advantages of Labor’s plan to have people being encouraged to buy new housing stock and making it available to tenants – as well as keeping the other benefits of negative gearing.

Where the problem is negative gearing, however, is that there’s something questionable with the current system where people are encouraged to buy existing properties, rent them out until they accumulate in value, sell, and gain a 50% discount on the Capital Gains Tax made on the property. It’s a pretty sweet, low risk deal, especially if the rental yields are low and you can reduce personal income tax to well below Scott Morrison’s magic $80,000 figure. From my personal experience, it encourages the type of investor frenzy caused by the selling of Preston Towers.

My old flat in South Penrith should be the type of place that would be perfect for first home owners. It’s 30 years old, with no depreciation potential. It’s close to shops, schools and public transport. It’s also small, in the middle of an area filled with apartment blocks of varying ages and should be cheap, as it was for me as a first home owner in 2009. I did ask my real estate agent during the process the type of people who would be buying the property – I was thinking of the tenants, who had taken great care of the property, but were also of Indian heritage, which may have made finding another property in Penrith difficult (I remember being asked when I was renting out the property whether “it was ok that they were Indian”). It was made very clear to me early on that only investors would be in the market for it, as only they had the means necessary for an offer battle.

So it came to pass. On the day of the first open home, there were multiple offers, and at prices I could barely believe. The “winner” was a baby boomer investor using superannuation proceeds. So that small flat will continue to be a rental, out of reach to first home owners, as will any other property in that area. There will be negative gearing, as the price that was paid cannot be covered by the rent for that area for some time. Under the current system, whenever the market goes up again in the same way it did between 2013 – 2015, the investor will sell, pocket the half of the gap with the discount and move onto somewhere else, denying even more first home owners a chance for a foot in the door. With the ALP system, the owner will be forced to be very sure that he is ready to shift his investment to new housing stock, with its reduction of the CGT discount. Or he will just hang onto the current place under the grandfathering provisions and be happy with the rental returns and reduction in taxable income – one day still being able to pocket the CGT discount.

For this kind of problem to occur in Penrith, its should show us that negative gearing policy change is a generational shift that should occur. It’s wrong that baby boomers are able to swoop in and deny Gen Y first home owners chances to buy their first home. There will be ridiculous scare campaigns directed at boomers and Gen X middle class voters, such as Malcolm Turnbull’s “Middle Class People, Your House Value Will Drop!!!!!” Even if that happens, that would be a good outcome for younger generations wanting to buy. It is difficult to see, however, with the grandfathering provisions for the people currently using negative gearing, how prices would drop dramatically. It would be hard to see why people who own investment property would panic sell before the changes come, risking a dropped value in their properties. The shift might be more gradual, however, as people investing in property will have to consider how to do their investing in the future.

Another criticism of the plan will state that may also be a bit of an increase in value in new developments, but that will also be interesting to see – there’s a great deal of building going on around the country which will need investors and it’s difficult to envisage a huge battle between investors driving up prices artificially. This way, channelling investor cash towards new property will have the impact of helping to grow working class jobs in construction and steel, rather than just helping to artificially driving up prices on existing properties.

There’s more qualified people than me to be looking at such things, using graphs and data. This is just one taxpayer’s questioning of funnelling possible taxation receipts into the pockets of wealthy property owners from the Baby Boomer and Generation X just willing to get more low risk cash. Meanwhile, the younger generation wait while such people count their tax breaks and advantages.

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437 thoughts on “Negative Gearing – Why Boomers and Gen X Need to Let It Go

  1. Stan Grant approached the Nationals about running as a candidate. WTF! He should have asked Rob Oakeshott about the way the National Party treats indigenous people and racism in the party ranks.

    Stan Grant rules out running for National Party in federal politics bid
    http://www.abc.net.au/news/2016-03-18/stan-grant-rules-out-running-for-nationals/7257544

    Grant should just forget politics. He obviously has no deep commitment to either side, he’s just shopping for offers.

  2. What a shame we can’t have a photo of the Greens sitting with the government during the divisions on the reform bill.

    • Once more people lacked awareness and are now disappointed. And yet they seemed to see so many bad things in JG, things that weren’t there. I don’t understand such people.

    • Most people are followers. They tend to follow the agenda set in the media. With Murdoch controlling most print and radio & TV relying on print for their talking topics (saves on having to employ so many news staff) it’s easy to set the agenda. It’s only reason the repulsive Abbott could be considered a leader and why a competent caring person like JG can be demonised. This nonsense verse captures it
      Last night while climbing on the stair
      I saw a man who wasn’t there.
      I saw that man again today.
      I wish that he would go away.

  3. Yep.

    Perhaps Stan Grant would like to try running for the Greens.

  4. Makes no difference to us below-the-liners.

    Pity the other 80% don’t realise what they are about to do.

  5. I agree, Stan Grant comes across to me as quite a Warren Mundine-type figure.

    Oh and the Greens can have him if he goes that way too.

    But yeah. By the looks of things, Di Natale appears to have made a big blunder in his actions today. The next polls should be interesting.

  6. I can’t vote for Ricky Muir in the senate, if there is a DD. but no matter what sort of election we get I can put Lee Rhiannon last.

  7. The big question now.

    Will King Malcolm Lack-Balls have the guts to call a DD or will he faff around and procrastinate until it’s all too late?

    • If he doesn’t then this rubbish ‘reform’ was a waste of time as Muir, Leyonhjelm, Lambie, Lazarus and Wang aren’t up for election if it’s a half-senate election.

    • If Dodgy dick keeps this up then I might put the greens only ahead of the bottom of the barrel, worst of the worst on the ballot paper (Fred Nile, Danny Nalliah et al).

    • To continue 😀

      David Leyonhjelm.

      This week, we learnt that there’s no principle that the government, the Greens or Nick Xenophon will not abandon for a few extra seats in parliament. This unholy alliance has raised the bottom rung of the ladder to exclude new parties from the Senate, make it a lot harder for those of us already here.
      But the minor – the fightback of the minor parties – starts now.

  8. Chopping out important bits

    Some content will be removed, including role playing activities.

    The program will apply in secondary schools only.

    The government will be requiring that, in relation to all official resources, branding of other organisations, links to other websites, references to other organisations be removed unless those organisations are a Commonwealth, state or territory-funded mental health or counselling service.

    The official resources of the program will be moved from the Safe Schools Coalition website to the Safe School hub. Safe School hub is a website supported by education departments all around Australia.

    Ensure that parents are appropriately empowered and engaged by requiring agreement of relevant parent bodies for schools to participate in the Safe Schools Coalition Australia programme, including the extent of participation and any associated changes to school policies.

    Requiring parental consent for student participation in programme lessons or activities, while maintaining the rights of all students to seek counselling services.

    Having an official fact sheet for the Safe Schools Coalition Australia programme for parents about the programme developed so they have access to full and consistent information of its content and the resources that may be used in schools.

    Having an official resource for parents of students dealing with questions of sexual identity developed, and distributed only by key qualified staff.

    http://www.theguardian.com/australia-news/live/2016/mar/18/senate-sits-through-the-night-to-consider-voting-reform-politics-live#comments

    • And yet it’s OK to allow a bunch of unqualified happy-clappers into schools as ‘chaplains’ to teach kids to be bigots.

  9. That mysterious ‘get rid of Safer Schools’ petition we heard about yesterday allegedly had 43 signatures. Would those signatures belong to the mob who voted for Abbott in the leadership spill? There were 44 of them, so it’s very likely the Abbott camp supported this as yet another way to get at Waffles.

  10. The senate just made it a bit harder for Waffles to go to an early election..

    The Greens voted with Labor and the crossbench. Must have been left out of their deal.

    Meanwhile back in the red room, Labor and the crossbench have passed a motion making it harder for the government to call a double dissolution election by limiting its ability to recall the Senate.

    On Friday afternoon, the government senator leader, Mitch Fifield, proposed a motion that the Senate rise until Tuesday May 10 “or such other time as may be fixed by the president”.

    Labor, the Greens and five independent and minor party senators joined forces to pass an amendment to that, saying that the president or deputy president can only only recall the Senate with the “absolute majority of senators where the leader or deputy leader of a party in the Senate can concur on behalf of every senator in that party”.

    It makes it harder to sprint to an early election. It doesn’t make it impossible

    http://www.theguardian.com/australia-news/live/2016/mar/18/senate-sits-through-the-night-to-consider-voting-reform-politics-live

    • The government has the CEFC legislation as a DD trigger. They don’t need the Senate.

    • TBLD

      I read some analysis in the last few weeks (can’t remember where) that suggested the CEFC rejection is not “important” enough to justify a DD..

  11. So, the bigots and homophobes have gutted the Safe Schools program. It is a total disgrace. At least we here in Victoria can rely on Dan Andrews. Hopefully he will retain it as it is and fund it if they withdraw the funding for not complying with their ‘new’ rules. I see they aren’t going to continue the funding after the four years are up anyway.

    • So it’s now going to be limited to secondary schools. Have they limited puberty education to secondary schools as well? I remember learning about puberty in primary school and one of the books given to us had diagrams of a naked man and woman.

    • And why is it that no one can tell us what these ‘inappropriate resources’ are?

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