Season 4, Episode 63: Why Is Everyone Talking About Negative Gearing?

11/13/24 • 25 min

Brick to the Future: Property Investment Show

In today's episode Cam & Al cover an in-depth discussion on negative gearing in Australia, focusing on its impact on property investors and the housing market.
Definition and Basic Concept: Negative gearing is a tax offset where investors deduct property losses from their taxable income, reducing tax liability. It’s commonly used by average Australians earning around $87,000.
Rationale for Negative Gearing: Negative gearing helps investors by having tenants, the government (via tax breaks), and the investor collectively cover the costs, making property investment more accessible, especially for first-time investors.
Historical Context and Political Debates: Previous attempts to remove negative gearing (e.g., 1987) led to rent hikes and investor sell-offs. The policy was reinstated due to the adverse impact on renters and the housing market. Politicians often debate negative gearing near elections, with concerns over housing affordability versus investor benefits.
Housing Supply Crisis: Australia faces a housing supply shortfall, worsened by high immigration and insufficient new housing construction (27% below the 10-year average). Negative gearing is seen as supporting housing availability by incentivizing investments in rental properties.
Proposed Policy Adjustments: One proposed change is to allow negative gearing only for new builds, thereby increasing housing supply. This could balance the need for affordable housing with economic growth while avoiding the creation of ghettos or segregated low-income areas, as seen in the U.S.
Economic Implications: Immigration is crucial for economic growth, but it raises housing demand. Increasing construction could offset this demand, but high property taxes (up to 43% on home costs) hinder affordability. Reducing taxes could make housing more affordable without eliminating negative gearing.

Future Policy Speculation: The likelihood of abolishing negative gearing is low due to past political backlash. The discussion speculates on the government’s strategic use of this topic to gain votes, despite a low probability of actual reform.

Negative gearing as an essential tool for maintaining a balanced housing market, where its modification, rather than elimination, could address both investor and social needs.

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Twitter: @OpenCorp_au
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Negative gearing as an essential tool for maintaining a balanced housing market, where its modification, rather than elimination, could address both investor and social needs.

Facebook: http://www.facebook.com/opencorp
Twitter: @OpenCorp_au
LinkedIn: https://www.linkedin.com/company/opencorp-au
Instagram: @OpenCorp

Previous Episode

Season 4, Episode 62: Why Paying LMI is an Investment, Not a Waste of Money

Listen Now for a breakdown on leveraging lenders Mortgage Insurance (LMI) to overcome barriers and secure your spot in the property market!
In this episode, we dive into the challenges young Australians face in today’s property market. With median house prices across capital cities now reaching $855,877 (up from $596,018 in 2019), saving a 20% deposit has become a daunting task. Rising living costs, inflation, and low household savings make it harder than ever to achieve homeownership.

Key Topics Covered:

Challenges of Saving for a 20% Deposit
- The average deposit needed is now $159,000—a 50% increase since 2020, meaning it can take up to 10 years to save the full amount in today’s market.
- Median property prices jumped 7% from 2023 to 2024, highlighting the financial cost of waiting.
Why Paying LMI is a Strategic Choice
- Lenders Mortgage Insurance (LMI) allows buyers to enter the market sooner with a 5-10% deposit.
- Although LMI is an additional cost (typically 1-2% of the loan), it enables buyers to capture property appreciation immediately.
Outpacing Rising Prices and Building Wealth
- By opting to pay LMI, buyers may achieve faster equity growth than they would by saving for a 20% deposit.
- For investors, LMI is often tax-deductible, further reducing its impact on overall costs.

Takeaway:
For many, paying LMI is a stepping stone to get into the property market today, potentially offering more financial benefits than saving for years. If you're ready to learn how LMI can work for you, tune in to hear why it’s a tool worth considering in your property journey.
Questions?
[email protected]

Facebook: http://www.facebook.com/opencorp
Twitter: @OpenCorp_au
LinkedIn: https://www.linkedin.com/company/opencorp-au
Instagram: @OpenCorp

Next Episode

Season 4 - Episode 64: What is Rent-Vesting? Meet Pascal the 20-something Property Investor

In this episode of Brick to the Future, hosts Cam McLellan & Allison Lewison interview Pascal Butler about his unique journey into property investing. Pascal, from Melbourne's Box Hill, shares insights into his background and decision to pursue investment properties rather than purchasing a personal residence.

Journey to Property Investment:

Pascal and Georgia preferred living in Box Hill but found purchasing a home there unattainable due to high costs.
They decided to invest in property rather than buying a personal residence, also known as "rentvesting".

Motivation and Influences:

Inspiration came after reading a property investment book by Cam McLellan. "My Four Year Old the Property Investor"
Pascal’s father, after reading the same book, offered to use equity from his home to help fund Pascal's entry into property investing.

Myths and Misconceptions:

Pascal challenges the idea that “rent money is dead money,” explaining that renting can be viable if you’re investing wisely.
Discusses how outdated ideas like these often stem from industry marketing tactics.

Financial Support and Strategy:

With OpenCorp’s assistance, Pascal’s father released $100,000 equity to fund Pascal’s first investment.
OpenCorp provided a comprehensive plan, or “roadmap,” to help him grow his portfolio over time.

Challenges and Sacrifices:

To prove his financial commitment, Pascal sold his car and adhered to a strict savings plan.
Overcame initial fears about debt with guidance on the structure and financial viability of the investment.

Investment Progress:

After purchasing his first property with OpenCorp, Pascal is on track for a second.
His portfolio has already grown significantly, with $200,000 gained in equity within 18 months.

Advice and Takeaways:

Pascal emphasises the importance of planning, education, and taking action rather than relying on outdated financial beliefs.
Encourages parents to consider helping their children with equity to assist with getting into the market.

Pascal’s experience showcases how family support, a clear investment strategy, and expert guidance can make property investment accessible and rewarding.

Facebook: http://www.facebook.com/opencorp
Twitter: @OpenCorp_au
LinkedIn: https://www.linkedin.com/company/opencorp-au
Instagram: @OpenCorp