Society/Culture Australian Property Prices to Crash?

[yodellinhank]

This is the property thread.

And it's an absurd one, with people cheerleading for the property market to tank and complaining about the government's lack of effort in making it so.

A price crash doesn't help anyone. Not even would be first home buyers struggling to get into the market.

 

[Cuzz09]

Yeah just enjoy it. Im happy my place value has gone up even a little bit compared to some freakish increases.

Im sure things will change but also words

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[Taylor]

The comparison to the stock market is invalid - assume rational investors and then compare the costs of entry and re-entry into the Property market vs buying/selling shares.

Why do you think people are happy to invest large sums of money for small year on year gains but not happy to invest that money in more productive financial instruments?

Half a million dollars isn't an unreasonable amount of money to dump into the stock market, it's absolutely big deal money that not everyone has access to but that exact same situation is true of buying investment property.

OK, let's just do away with tax altogether and let everyone fend for themselves.

The other side of the coin isn't to do away with tax, you just need to appreciate that it's your money they are holding, just as it's someone else's money they are holding - not their money they are so gracious as to send back to you.

 

[Deliverance]

And it's an absurd one, with people cheerleading for the property market to tank and complaining about the government's lack of effort in making it so.

A price crash doesn't help anyone. Not even would be first home buyers struggling to get into the market.

No, people are suggesting ways to overcome record levels of housing unaffordability.

Why do you think people are happy to invest large sums of money for small year on year gains but not happy to invest that money in more productive financial instruments?

Half a million dollars isn't an unreasonable amount of money to dump into the stock market, it's absolutely big deal money that not everyone has access to but that exact same situation is true of buying investment property.



The other side of the coin isn't to do away with tax, you just need to appreciate that it's your money they are holding, just as it's someone else's money they are holding - not their money they are so gracious as to send back to you.

Exactly and I don’t want the money of a 40k pa person being "held" then redistributed to people earning 100k pa via flawed middle class welfare like negative gearing.

 

[Taylor]

No, people are suggesting ways to overcome record levels of housing unaffordability.


Exactly and I don’t want the money of a 40k pa person being "held" then redistributed to people earning 100k pa via flawed middle class welfare like negative gearing.

I think you'll find that the money goes the other direction in your example, but I agree with the principle. The negative gearing offsets the tax the 100k pa earner would pay of their own money, nobody else's money is sent to them.

But in this country, if you've got two children you are well into the tax negatives (that means other tax payers are having their money directed to you) even earning the average full time income.

So what we have here is an example of it being selfish to want to keep your own money, but not selfish to want it from other people.

 

[Taylor]

No, people are suggesting ways to overcome record levels of housing unaffordability.

I have a solution for it.

Allow bulk Chinese real estate investors for new developments that can only be rented.

They will build thousands of them, the rental market will drop as each of these residences will be required to be leased to a local resident.

The value of established homes will settle as the supply is pumped up.

 

[Deliverance]

I think you'll find that the money goes the other direction in your example, but I agree with the principle. The negative gearing offsets the tax the 100k pa earner would pay of their own money, nobody else's money is sent to them.

But in this country, if you've got two children you are well into the tax negatives (that means other tax payers are having their money directed to you) even earning the average full time income.

So what we have here is an example of it being selfish to want to keep your own money, but not selfish to want it from other people.

I don't think so.

LOL, population growth keeps the economy going. Even Costello wanted people having one for the country.

 

[Taylor]

I don't think so.

LOL, population growth keeps the economy going. Even Costello wanted people having one for the country.

People earning 100k a year are subsiding the people earning 40k.

The person negatively gearing a property doesn't get any money they weren't going to be paying out of their own pocket. They can't offset zero tax liability with expenses.

 

[Deliverance]

People earning 100k a year are subsiding the people earning 40k.

The person negatively gearing a property doesn't get any money they weren't going to be paying out of their own pocket. They can't offset zero tax liability with expenses.

Everyone puts their fair share of tax in to the pot. In addition to ordinary government services that all citizens receive, the 100k person NGs a property and gets 3-5k back from the pot. The 40k person doesn't.

 

[Taylor]

Everyone puts their fair share of tax in to the pot. In addition to ordinary government services that all citizens receive, the 100k person NGs a property and gets 3-5k back from the pot. The 40k person doesn't.

The money never goes in. At the end of the year when they work out what you owe them or vice versa it goes into the pot.

What tends to happen is people send in more than their fair share and then it's made right by giving them back their own money after the return is done

 

[Bombermania]

People earning 100k a year are subsiding the people earning 40k.

The person negatively gearing a property doesn't get any money they weren't going to be paying out of their own pocket. They can't offset zero tax liability with expenses.

It is an urban myth that a person earning $100k is subsiding a person earning $40k.

The question with negative gearing isn't the cost of it but whether it is increasing available rental properties.

 

[Simon_Nesbit]

It is an urban myth that a person earning $100k is subsiding a person earning $40k.

The question with negative gearing isn't the cost of it but whether it is increasing available rental properties.

One of my favourite stories about progressive tax...

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100...

If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1, The sixth would pay $3, The seventh would pay $7, The eighth would pay $12, The ninth would pay $18, The tenth man (the richest) would pay $59.

So, that's what they decided to do!! The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80.

Being good mates and Australians they still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. Now what about the other six men? They were after all the paying customers. How could they divide the $20 windfall so that everyone would get his fair share? They realised that $20 divided by six is $3.33.

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each Man's bill by a higher percentage the poorer he was, to follow the Principle of the Australian Tax System they had been using, and he proceeded to work out the amounts he suggested that each should now pay. And so the fifth man, like the first four, now paid nothing (100% Saving). The sixth now paid $2 instead of $3 (33% saving), The seventh now paid $5 instead of $7 (28% saving), The eighth now paid $9 instead of $12 (25% saving), The ninth now paid $14 instead of $18 (22% saving), The tenth now paid $49 instead of $59 (16% saving). The six are better off than before and the first four continued to drink for free.

But, once outside the bar, the men began to compare their savings. "I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man and said "but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!" "That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

So! Boys and Girls, journalists and government ministers, is how the Australian Taxation System. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up any more. In fact, they might start drinking overseas, where the tax atmosphere is somewhat friendlier!

 

[Royal Flush]

One of my favourite stories about progressive tax...

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100...

If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1, The sixth would pay $3, The seventh would pay $7, The eighth would pay $12, The ninth would pay $18, The tenth man (the richest) would pay $59.

So, that's what they decided to do!! The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80.

Being good mates and Australians they still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. Now what about the other six men? They were after all the paying customers. How could they divide the $20 windfall so that everyone would get his fair share? They realised that $20 divided by six is $3.33.

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each Man's bill by a higher percentage the poorer he was, to follow the Principle of the Australian Tax System they had been using, and he proceeded to work out the amounts he suggested that each should now pay. And so the fifth man, like the first four, now paid nothing (100% Saving). The sixth now paid $2 instead of $3 (33% saving), The seventh now paid $5 instead of $7 (28% saving), The eighth now paid $9 instead of $12 (25% saving), The ninth now paid $14 instead of $18 (22% saving), The tenth now paid $49 instead of $59 (16% saving). The six are better off than before and the first four continued to drink for free.

But, once outside the bar, the men began to compare their savings. "I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man and said "but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!" "That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

So! Boys and Girls, journalists and government ministers, is how the Australian Taxation System. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up any more. In fact, they might start drinking overseas, where the tax atmosphere is somewhat friendlier!

Nailed it.


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[hamohawk1]

I think something the state government's should look at if they are serious about housing affordability and decentralisation is setting up large universities in regional towns .

The knock on effects would be :
•Jobs to build the uni
•Jobs to service the Uni
•Jobs to build housing to accomodate the students and staff
•International students should be encouraged to attend these regional universities rather than their cashed up parents buying every single house within 10 kilometres of the uni in metropolitan areas
• regional students could stay living with their parents/friends rather than move to the city and pay exorbitant rents in a hovel
• regional parents would get to enjoy the company of their children for longer and not have to bear the burden of their costs

Finally and most importantly- over time the General IQ and population of that regional centre should improve thus creating a self sustaining economy .

Most international students would still likely want to come to the major cities due to trendy cultural factors though. You would also need to convince high quality teach staff to relocate, which again i feel unless the $$$ or other factors are their won't happen.

I think Governments are a big part of the solution. Unless of absolute necessity, all State gov't departments should be relocated to rural areas. Can't see private investment e.g. law firms, accountancy etc ever entertaining a move out of the CBD without the public sector pulling the trigger first.

 

[hamohawk1]

One of my favourite stories about progressive tax...

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100...

If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1, The sixth would pay $3, The seventh would pay $7, The eighth would pay $12, The ninth would pay $18, The tenth man (the richest) would pay $59.

So, that's what they decided to do!! The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80.

Being good mates and Australians they still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. Now what about the other six men? They were after all the paying customers. How could they divide the $20 windfall so that everyone would get his fair share? They realised that $20 divided by six is $3.33.

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each Man's bill by a higher percentage the poorer he was, to follow the Principle of the Australian Tax System they had been using, and he proceeded to work out the amounts he suggested that each should now pay. And so the fifth man, like the first four, now paid nothing (100% Saving). The sixth now paid $2 instead of $3 (33% saving), The seventh now paid $5 instead of $7 (28% saving), The eighth now paid $9 instead of $12 (25% saving), The ninth now paid $14 instead of $18 (22% saving), The tenth now paid $49 instead of $59 (16% saving). The six are better off than before and the first four continued to drink for free.

But, once outside the bar, the men began to compare their savings. "I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man and said "but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!" "That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

So! Boys and Girls, journalists and government ministers, is how the Australian Taxation System. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up any more. In fact, they might start drinking overseas, where the tax atmosphere is somewhat friendlier!

Works in theory until the person who's paying 59$ originally employs a good accountant, and takes advantage of tax write-offs and your argument has no applicability in current day Australia.

 

[Bombermania]

Works in theory until the person who's paying 59$ originally employs a good accountant, and takes advantage of tax write-offs and your argument has no applicability in current day Australia.

It isn't just about getting a good accountant because every taxpayer can use the tax system to reduce their tax and it is designed that way to encourage people to do certain things without the government needing to tell people to do them.

 

[hamohawk1]

It isn't just about getting a good accountant because every taxpayer can use the tax system to reduce their tax and it is designed that way to encourage people to do certain things without the government needing to tell people to do them.

Very fine line between genuine deductions and outright rorting the system legally, or through questionable deductions.

 

[CatFan79]

Very fine line between genuine deductions and outright rorting the system legally, or through questionable deductions.

Top 10% contribute 50% of income tax.

Don't allow your envy to cloud your judgement.

 

[hamohawk1]

Top 10% contribute 50% of income tax.

Don't allow your envy to cloud your judgement.

Which is inevitably going to happen when they earn big $$$. Just because they pay some tax doesn't mean the top end of town aren't still rorting the system.

 

[Evolved1]

Everyone rorts the system. Poor, rich, middle class. We're all looking for a loophole.

The only people I've met who have pure selfless motives are on social media. We're a class above.

 

[Gigantic]

One of my favourite stories about progressive tax...

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100...

If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1, The sixth would pay $3, The seventh would pay $7, The eighth would pay $12, The ninth would pay $18, The tenth man (the richest) would pay $59.

So, that's what they decided to do!! The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten men would now cost just $80.

Being good mates and Australians they still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. Now what about the other six men? They were after all the paying customers. How could they divide the $20 windfall so that everyone would get his fair share? They realised that $20 divided by six is $3.33.

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each Man's bill by a higher percentage the poorer he was, to follow the Principle of the Australian Tax System they had been using, and he proceeded to work out the amounts he suggested that each should now pay. And so the fifth man, like the first four, now paid nothing (100% Saving). The sixth now paid $2 instead of $3 (33% saving), The seventh now paid $5 instead of $7 (28% saving), The eighth now paid $9 instead of $12 (25% saving), The ninth now paid $14 instead of $18 (22% saving), The tenth now paid $49 instead of $59 (16% saving). The six are better off than before and the first four continued to drink for free.

But, once outside the bar, the men began to compare their savings. "I only got a dollar out of the $20 saving," declared the sixth man. He pointed to the tenth man and said "but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar too. It's unfair that he got ten times more benefit than me!" "That's true!" shouted the seventh man. "Why should he get $10 back, when I got only $2? The wealthy get all the breaks!" "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

So! Boys and Girls, journalists and government ministers, is how the Australian Taxation System. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up any more. In fact, they might start drinking overseas, where the tax atmosphere is somewhat friendlier!

This story gets posted around so much and while it's a nice story and all it's an oversimplification of what really happens. It's a story that could be helpful to explain the progressive tax system to my 12 year old nephew but that's about as helpful as it is.

Throw in numbers around how much each person actually earns and how the tax break affects them and you start to get a different story.

But let's for the sake of argument keep with the oversimplified analogy but plug in real life numbers (from 2014-15) based off deciles instead of cherry picked numbers and you actually start to get a slightly different story even though it's still oversimplified.




Here, the 10th person pays $46, 9th person pays $18, 8th person pays $12 etc. It also shows that it's not actually 4 people who "get a free ride" like the story suggests. And the contribution by the 10th person is much less. Then consider the effects of further tax benefits from deductions and exemptions.

Let's not ignore that many of the wealthy rely on much of the infrastructure, law and order, access to credit etc etc etc because their money making ability is arguable more dependent on it. Does everyone in society receive the exact same amount of benefits from the taxation system and the public goods that it provides? Not everyone is drinking at the same bar, or even drinking the same beer. And it's also more difficult to get up and leave as the story suggests.

 

[hamohawk1]

This story gets posted around so much and while it's a nice story and all it's an oversimplification of what really happens. It's a story that could be helpful to explain the progressive tax system to my 12 year old nephew but that's about as helpful as it is.

Throw in numbers around how much each person actually earns and how the tax break affects them and you start to get a different story.

But let's for the sake of argument keep with the oversimplified analogy but plug in real life numbers (from 2014-15) based off deciles instead of cherry picked numbers and you actually start to get a slightly different story even though it's still oversimplified.


View attachment 1114614

Here, the 10th person pays $46, 9th person pays $18, 8th person pays $12 etc. It also shows that it's not actually 4 people who "get a free ride" like the story suggests. And the contribution by the 10th person is much less. Then consider the effects of further tax benefits from deductions and exemptions.

Let's not ignore that many of the wealthy rely on much of the infrastructure, law and order, access to credit etc etc etc because their money making ability is arguable more dependent on it. Does everyone in society receive the exact same amount of benefits from the taxation system and the public goods that it provides? Not everyone is drinking at the same bar, or even drinking the same beer. And it's also more difficult to get up and leave as the story suggests.

Easy on bringing that nuance here mate!

Love the breakdown though.

 

[Suspense]

Why do you think people are happy to invest large sums of money for small year on year gains but not happy to invest that money in more productive financial instruments?

Half a million dollars isn't an unreasonable amount of money to dump into the stock market, it's absolutely big deal money that not everyone has access to but that exact same situation is true of buying investment property.

What are you on about? All I said was that you cannot compare volatility in the share market to property ownership - as the costs of entry and exit are higher in property than they are in share ownership.

You seriously think that if the 50% CGT concession was removed that people would be day-trading property - incurring legals, stamp duty, advertising, etc. with each trade?

 

[Suspense]

You won't be exempt for a second time.

The gains you made , means you pay more to enter.


So now your in a dilemma.
Stay ideological or release some equity and buy another house.

This is gibberish.

If I buy a property for $900k and sell it for $1.2m, I've realised a $300k capital gain. I pay zero tax on that gain. Whether I put the net proceeds into another property, invest in shares/crypto, or run it through the pokies, it is irrelevant - I have made a capital gain from that transaction.

Contrast this with the tax on my productive output, which actively benefits the economy, where I can be taxed as high as 47c in every dollar earned.

This is the same argument Warren Buffett made when he complained about his effective tax rate (18%), mainly from capital gains, being significantly lower than his own secretary’s effective tax rate (32%) on her salary that she derived from her productive hard work.

I'm no ideologue - I am just presenting the facts.

 

[Bombermania]

This is gibberish.

If I buy a property for $900k and sell it for $1.2m, I've realised a $300k capital gain. I pay zero tax on that gain. Whether I put the net proceeds into another property, invest in shares/crypto, or run it through the pokies, it is irrelevant - I have made a capital gain from that transaction.

Contrast this with the tax on my productive output, which actively benefits the economy, where I can be taxed as high as 47c in every dollar earned.

This is the same argument Warren Buffet made when he complained about his effective tax rate (18%), mainly from capital gains, being significantly lower than his own secretary’s effective tax rate (32%) on her salary that she derived from her productive hard work.

I'm no ideologue - I am just presenting the facts.

Capital gains tax on selling a family home is a better option than a land tax.