It's no secret that housing affordability has been dominating the headlines for the past year or two.
But there is plenty of misinformation out there.
This is especially the case for property investment, which seems to be taking the blame for the recent strong price growth in Sydney and parts of Melbourne.
Both sides of politics are promising to "fix the problem", which is not only short-sighted it also fails to understand either the triggers for price rises or the long-term ramifications of any government market intervention.
Here's the thing: investment property is one of the highest, if not the highest, taxed asset classes already!
When you consider – stamp duty, land tax, GST, government charges, council rates, water rates, development approvals, local council payments, etc. investors are already stumping up a huge amount of money for the "privilege" of trying to improve their financial position and providing a social benefit.
In fact, according to the Housing Industry Association in New South Wales, about $340,000 of the cost of a $800,000 property is due to tax!
Capital Gains Tax also means that any negative gearing benefits are eventually returned (and probably more!) to the government when an investor sells their property.
Indeed, some of the previously allowed deductions are added back on a sale to increase any gain.
Property investment provides housing for about 30 per cent of Australia's population.
And these people aren't just frustrated would-be homebuyers.
They are just ordinary Australians who rent for a variety of reasons.
If property investment was discouraged or overly taxed, and investors retreated from the market, where would these people live?
It also creates hundreds of thousands of jobs in construction, trades such as plumbing, electrical, as well as finance and real estate as well as various suppliers from building materials to household goods such as carpets, furniture, white goods, etc. – along with many other aligned industries such as conveyancing and tax accountancy.
Currently residential rental yields are low, especially in Sydney and Melbourne, so many investors make just two to four per cent for investing hundreds of thousands of their dollars.
Their goal, instead, is that property will increase in value over the long-term so they can have a better financial position in retirement and therefore not be reliant on the pension or even qualify for it at all.
On the back of increased values comes increasing rents and equity to assist with retirement or to draw down for improvements such as a renovation.
Imagine the outcry if rents increased 50 per cent to allow a real return to a property investor?
We talk a lot about the poor saving habits of Australians here at Property Update – that's why property investment is one of the best ways for people to save for the future.
Home loans are also one of the safest bank income products and Australia has very little housing bad debts, unlike many other countries.
About 30 per cent of all housing stock is owned by investors, which has resulted in the government providing less social housing over recent decades.
Having a robust property investment sector means that government expenditure can be spent in other areas while mum and dad investors carry the rental housing load.
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In my opinion, everyone is focusing too much on the short-term.
Sure, Sydney real estate has recorded strong price growth over the past three years, but if you look at its performance over the past 10 years, it only grew by 7.4 per cent annually – which was a worse result that shares.
While shares are a viable investment option for many people, stocks don't improve the everyday lives of Australian’s, except maybe the direct investor or broker.
The money circulating the financial markets are not used by companies to buy plant, hire employees, improve wages or expand into other products or markets.
Interestingly property investors do not receive any real government assistance unlike share investors, who receive a return of franking credits to increase their returns or limit any taxes on dividends.
Property has a social good to it compared to all other investment classes because it creates family and stability which underpins our way of life.
Every dollar a property investor spends is a dollar less that the government needs to spend on social housing, leaving the government with more funds for hospitals, schools, security, and social benefits payments, just to name a few.
If investors switched to the share market, the increased turnover would add very little to nothing to our society.
Most of us can do without shares, but none of us can do without housing – plain and simple.
Property investors provide housing for people to live in, massive employment, and taxes.
In return for their investment, they are entitled to claim losses – like any other business can.
State and Federal Government revenue streams are also heavily reliant on the taxes that investors pay during the entire course of their property ownership.
Think about it... Investors pay higher stamp duty when they buy a property, a variety of other taxes during ownership such as land tax, council rates, water rates, council contributions, and then pay a lump sum via an adjusted Capital Gains Tax when they sell.
Many of the property taxes are not pegged to CPI or require independent approval so the various governments and local authorities are disproportionately raking it in.
Imagine business owners not being able to claim losses when setting up a business or share investors not being allowed to claim interest on borrowed monies to buy shares?
I'm not arguing that there isn't an issue with housing affordability in our big capital cities, but it has taken decades to reach this level.
I fail to see how short-term market tinkering will address an issue that has built up over the long-term.
We can only hope that the upcoming Federal Budget recognises that.
As well as the important economic and social role that property investment plays in our society.
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