Some readers will be familiar with a famous refrain from the Tea Party “Keep your Government hands of my Medicare payments”. Anyway, I liked this property newsletter which complained that negative gearing really wasn’t what it used to be:
It’s been all bad news for property investors in Australia for the last 5 years. All of the benefits of “Negative Gearing” have evaporated between government intervention through lower taxes, Banks lowering LVR’s and raising lending criteria and a flattening out in house price rises. No wonder buyers are now saying “why bother”.
Why indeed. What is the country coming to? Soon you’ll have to earn your living.
I’ve never been able to understand negative gearing as a good means of creating affordable housing, so i wonder what your opinion is of its efficiency
I seems suss to me, an artefact of some tax rules which generates a subsidy for an inherently speculative activity. Not that I don’t want people building houses, but not for the appreciation of the land value. Martin Wolf persuaded me of the importance of this in a recent column. I’d previously understood Henry George’s point, but not it’s central significance to our economy and to the psychology of our economy.
Thanks Nicholas. It has always seemed to me that means-testing /renters/ and offering rebates would be more efficient, but even this would still, to a degree, maintain the tension between the social aim of affordable housing versus the political aim of a sense of financial security bubbling away in the minds of voters to persuade them an incumbent government is making them wealthier.
Would there be a real difference between this and negative gearing of futures markets in foods, on the grounds that it would encourage farm production?
Surely the most cost effective way to draw investment away from the relatively unproductive sphere of house price speculation is to actually offer reasonable alternative investment vehicles?
If you gauge inflation at about 3% and the marginal tax rate of a typical working person with a bit of spare income they might invest at perhaps 30% then you need at least 4.3% return just to go nowhere. You can probably get a fraction more than that with a low risk cash account. However, if you were also paying rent while putting that money into the cash account then you would be way behind (especially with the relative high rents we have been seeing lately).
If you buy shares you might get substantially higher returns, but also take on substantially higher risk (i.e. it is much more speculative than the other options), so if speculation is evil, then buying houses seems the only remaining investment that minimises risk while still delivering a non-zero return. At least, until the bubble deflates… which is something the entire national governing apparatus is attempting to ensure does not happen.
Hi Dave,
I think if you want to do something you should be doing it as directly as possible. Adam Smith said it – in his cute way.
11-… Qxd4 12-Qxd4 cxd4 13 Rxf7 Bxe5
In this situation black has better positions.
Wrong place. Sorry
Club troppo – calligula
“a subsidy for an inherently speculative activity”
“The bounty to the white herring fishery is a tonnage bounty; and is proportioned to the burden of the ship, not to her diligence or success in the fishery; and it has, I am afraid, been too common for vessels to fit out for the sole purpose of catching, not the fish, but the bounty.”
Mr. Gruen,
Forgive me but it seems that there is an eternal difference between those who ‘do’ industry and those who take over and ‘manage’ industry.
As you have indicated – subsidies can get in the way of industry and commerce, as can interventions of any ill considered sort.
You could perhaps research how the taxation on shipping tonnage and the way that tax was calculated soon caused the construction of vessels that were not optimized for the sort of sea conditions they had to navigate.
Who knows how many lives that episode of number crunching cost the British Merchant Marine.
Yes. I suppose that I am suggesting that certain sorts of ‘government intervention’ stuff it up for so many in so many ingenious ways.
There are essentially two sorts of ‘intervention’ that seem to cause the most detriment.
Firstly there’s the sort disguised as well intentioned; usually dreamt up by those wanting a comfortable job wielding arbitrary authority over some human activity.
Then there are those dolled up by those who want to manage some activity they’ve noticed is a money spinner.
The first package causes that aura surrounding the halls of power – legislatures, police stations, law courts – anywhere someone, who isn’t personally affected and usually hasn’t much of a clue, is nonetheless granted the authority to tell someone they don’t even know exactly what they ‘must’ do.
The second lot – an ingenious series of ‘products’ whipped together by those who couldn’t abide being fishermen or miners, engineers or homemakers – or whatever Endeavour is real and productive out there in the world.
Those who ‘manage’ the latter lot rely upon those who ‘manage’ the first to make the rules.
Meanwhile each day with each burst bubble and scandal revealed the only thing they are managing is to prove that there are way too many making new, unworkable, rules and many more too busy seeking ways to bend each new rule.
It, the whole shebang, is a dog chasing its tail.
Pardon the simple analogy; It’s a simple subject.
The solution, however?