4 ms·

Why would housing not be an investment commodity if banks were more strongly regulated? What specific regulation do you propose that would prevent housing inves

Why would housing not be an investment commodity if banks were more strongly regulated? What specific regulation do you propose that would prevent housing investments?

easytiger 12y ago
Communal ownership of all property comrade!
- collyw 12y ago
  Far too radical an idea for here.
jussij 12y ago
In Australia we have negative gearing. In layman's terms it means you can offset property expenses against your real income. So if you have a big income with a corresponding big tax burden, you can reduce you extra income to purchase a property and by using the expenses of that investment, reduce you net income and hence reduce you net tax burden. So rather than paying the tax man, you end up paying the bank, which for you the rich investor, is not bad since the value there is a chance that second, third, forth property that you are now gearing will appreciate in value. So while the tax receipts of the country go down, your paper wealth goes up, that is until the next GFC. So the end result is the rich continue to reduce their tax burden, reducing the tax income of the country, hence passing the tax burden onto the middle and lower classes and in the process the rising house prices encourage those same rich to invest in yet another property as their paper wealth continues to climb. Any one can see that is not good for the country, not good for the community and also not sustainable. It's easy to create a bubble but at some time the buble has to burst.
- yummyfajitas 12y ago
  Negative gearing is not a banking regulation, it's a tax subsidy.
  - nl 12y ago
    I suspect the parent was replying to the second part of your question: What specific regulation do you propose that would prevent housing investments?. The parent's response is (presumably): "remove negative gearing".
    - deleted 12y ago
      [deleted]
    - jussij 12y ago
      That is correct. The original parent said "housing has become an investment commodity" and that it very true here in Oz. Thanks to a climate of very low interest rates and "negative gearing" it means only those with high taxable income and a high tax burden can afford to invest in housing and in the process pushing housing prices ever higher. But this is a bubble and it is unsustainable. If the world economy ever gets over the problems of the 2007 GFC and we finally see any form of real growth, interest rates will have to increase from their near zero position. When that happens it will cause yet another crisis when that housing bubble is pricked. By removing that unhealthy gearing tax, the Oz government could at least take some of the heat out of what is an already overheated property market. Edit: Before someone points out Oz interest rates are actually not zero but rather high, unlike the majority of the developing world. Last Tuesday the overnight cash rate came down to it's lowest level since the 1950's. And since the Oz economy is not running as well as it should, all predictions are we'll be seeing several more rate cuts in the future. And with the current tax settings, that means we're in for a booming of house prices. We only have to go back to 2007 to see how over inflated house prices can destroy a world economy.
      - nl 12y ago
        (I'm Australian) But this is a bubble and it is unsustainable. So many people say this, presumably because "it must be true". I just don't see why that is necessarily so - at least in the medium (20-30 years) term. Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high. In the short term, yeah, it would be good to see lower growth in housing prices, or even a drop. I'm quite sympathetic to the idea of negative gearing reform. A 5% drop in real terms is possible, or even likely at some point, and markets like Perth and Darwin will always be more volatile. But that's very different to the 30-50% drops that "bubble bursting" implies.
pjc50 12y ago
He mentioned a list of items, such as Foreign Investment Review Board (who should be in charge of making sure foreign investors only buy new properties) which is apparently a rule that's not being enforced. Lots of the western world is seeing housing bid upwards by capital flight from China.
- yummyfajitas 12y ago
  It's not a banking regulation.
  - ltp 12y ago
    No, but a bank (either local or foreign) has a duty of care to ensure that a loan will not be used to finance an investment that potentially violates local or foreign laws placing said loan at higher risk of default.
stana 12y ago
Not prevent it. But around half the purchases in housing being for investment seems a bit distorted. As far as regulation I would start by encouraging lending to productive parts of the economy (business, innovation, startup, infrastructure, etc.) and limit lending for rent-seeking activities like market speculation.

Why would housing not be an investment commodity if banks were more strongly regulated? What specific regulation do you propose that would prevent housing investments?

easytiger 12y ago

Communal ownership of all property comrade!

collyw 12y ago
Far too radical an idea for here.

jussij 12y ago

In Australia we have negative gearing. In layman's terms it means you can offset property expenses against your real income. So if you have a big income with a corresponding big tax burden, you can reduce you extra income to purchase a property and by using the expenses of that investment, reduce you net income and hence reduce you net tax burden. So rather than paying the tax man, you end up paying the bank, which for you the rich investor, is not bad since the value there is a chance that second, third, forth property that you are now gearing will appreciate in value. So while the tax receipts of the country go down, your paper wealth goes up, that is until the next GFC. So the end result is the rich continue to reduce their tax burden, reducing the tax income of the country, hence passing the tax burden onto the middle and lower classes and in the process the rising house prices encourage those same rich to invest in yet another property as their paper wealth continues to climb. Any one can see that is not good for the country, not good for the community and also not sustainable. It's easy to create a bubble but at some time the buble has to burst.

yummyfajitas 12y ago
Negative gearing is not a banking regulation, it's a tax subsidy.
- nl 12y ago
  I suspect the parent was replying to the second part of your question: What specific regulation do you propose that would prevent housing investments?. The parent's response is (presumably): "remove negative gearing".
  - deleted 12y ago
    [deleted]
  - jussij 12y ago
    That is correct. The original parent said "housing has become an investment commodity" and that it very true here in Oz. Thanks to a climate of very low interest rates and "negative gearing" it means only those with high taxable income and a high tax burden can afford to invest in housing and in the process pushing housing prices ever higher. But this is a bubble and it is unsustainable. If the world economy ever gets over the problems of the 2007 GFC and we finally see any form of real growth, interest rates will have to increase from their near zero position. When that happens it will cause yet another crisis when that housing bubble is pricked. By removing that unhealthy gearing tax, the Oz government could at least take some of the heat out of what is an already overheated property market. Edit: Before someone points out Oz interest rates are actually not zero but rather high, unlike the majority of the developing world. Last Tuesday the overnight cash rate came down to it's lowest level since the 1950's. And since the Oz economy is not running as well as it should, all predictions are we'll be seeing several more rate cuts in the future. And with the current tax settings, that means we're in for a booming of house prices. We only have to go back to 2007 to see how over inflated house prices can destroy a world economy.
    - nl 12y ago
      (I'm Australian) But this is a bubble and it is unsustainable. So many people say this, presumably because "it must be true". I just don't see why that is necessarily so - at least in the medium (20-30 years) term. Australian demand is propped up by Chinese flight-to-safety money, and housing demand (especially in Sydney and Melbourne) remains very high. In the short term, yeah, it would be good to see lower growth in housing prices, or even a drop. I'm quite sympathetic to the idea of negative gearing reform. A 5% drop in real terms is possible, or even likely at some point, and markets like Perth and Darwin will always be more volatile. But that's very different to the 30-50% drops that "bubble bursting" implies.

pjc50 12y ago

He mentioned a list of items, such as Foreign Investment Review Board (who should be in charge of making sure foreign investors only buy new properties) which is apparently a rule that's not being enforced. Lots of the western world is seeing housing bid upwards by capital flight from China.

yummyfajitas 12y ago
It's not a banking regulation.
- ltp 12y ago
  No, but a bank (either local or foreign) has a duty of care to ensure that a loan will not be used to finance an investment that potentially violates local or foreign laws placing said loan at higher risk of default.

stana 12y ago

Not prevent it. But around half the purchases in housing being for investment seems a bit distorted. As far as regulation I would start by encouraging lending to productive parts of the economy (business, innovation, startup, infrastructure, etc.) and limit lending for rent-seeking activities like market speculation.