australianvoice (australianvoice) wrote,
australianvoice
australianvoice

Jobs and Growth? Not in the Housing Industry! Money Goes to Speculation not Productive Investment.

This article reprints an analysis of Labor's negative gearing policy by The Daily Reckoning, an alternative and independent source for investment advice. They are not a political lobby group, but people who want to advise investors on how to get the best returns. What makes them different is that they reject way the government and the big four Australian banks manage the financial system.

We reproduce it here because their discussion of Labor's policy 2016 on negative gearing reveals a hidden policy bias in government policy toward "investing" in areas that are speculative rather than investing in productive industries. What is the difference? Buying a house with the hope that it's value will increase and so increase your wealth is speculative, non-productive investment. Not only can houses fall as well as increase in value, nothing new is produced and virtually nobody is employed. If this "investment" were not given a generous tax deduction, it would not be nearly as attractive as it is now. If as Labor suggested all future tax deductions were given only for people who built new houses, this would not only slowly remove this expensive tax loophole, but would create more new houses and employ people to build them. "Jobs and Growth" you might think.

So what is the problem? There a lot of important and wealthy people have put their money into houses and they have close ties to the LNP. But there is another player: land bankers, people who own the land that could be opened up for housing. Their assets consist in unused land which under the present system just increases in value year by year while they do nothing to it at all. As the author notes: "Stockland is one of the largest land bankers in Australia. It has a huge amount of land on its balance sheet that it drip-feeds onto the market. Restricted supply and the current tax set up favours Stockland enormously." So will Stockland advocate scrapping negative gearing? Could they sabotage Labor's policy if they wanted to? Answers here are No and Yes. This is the conclusion the author ends with:

"There is a very powerful property lobby in this country. A lot of people make money off the land…not from working it — in the farming sense — but from not working it at all. They collect the rents and want policies, designed to increase land value, at the expense of productive investment."

Land bankers look like another non-competitive cartel intent on holding up the price of land and houses. If you can't afford to pay your rents or buy a house, now you know why. Somebody else has the land and they don't really want to sell it to you.

not as a political endorsement of the Australian Labor Party


Greg Canavan writing in The Daily Reckoning on Labor's Negative Gearing Policy
16/02/16

LABOR'S NEGATIVE GEARING POLICY
Ever since Malcolm Turnbull took the reins of the Coalition, there’s been a lot of talking but not much doing. They’ve talked about major tax reform, but interest groups and polling have scared them from actually doing anything. That inaction created an opening for Labor. And they took it. On the weekend, Labor announced plans to limit negative gearing to new houses only, halving capital gains tax concessions from July next year.

This is an eminently sensible policy.
It will save the budget billions and still encourage capital to go where it was intended in the first place — that is, the construction of new housing supply. But the vested interests and property parasites are already out in force…ignorant teeth bared, mouths drooling.

Take the headline from The Weekend Australian. Now, keep in mind that News Corp, the publisher, also owns a large stake in realestate.com.au. So there’s clearly a conflict of interest. Check out the headline:

Labor’s hit on property investors

Huh? So Labor announces a sensible policy that will save the budget billions AND direct a greater amount of capital into productive investment…and apparently it’s a raid on property investors?


THE POWER OF THE PROPERTY LOBBY
That’s the power of the property lobby. Price rises are good, but any threat to that is an abomination. The article states that the policy faces a ‘backlash from the property industry which has warned it could restrict the supply of housing in major cities.’ While that’s a laughable statement, given the intent of the policy is to only apply negative gearing to new builds (thus increasing supply), there is some truth to it. I’ll explain how in a moment.

The article also states that negative gearing and capital gains tax concessions cost taxpayers around $10 billion per year, which is more than the government spends on higher education. What’s more, only 7% of new investment loans go towards housing construction. The vast majority of negatively geared investment goes toward speculating on existing housing.

Now, with this in mind, listen to this statement by Stockland CEO Mark Steinert, quoted in the aforementioned article:

"Last time they cut negative gearing on rental properties, it was reinstated within a few months because it had such a devastating impact on the rental market.
"I can’t see how this will be any different…the affordability challenge is that you need more rental property, and negative gearing goes directly to meeting that.
"

Such a statement is breathtaking. Firstly, no one is abolishing negative gearing. The existing rules will be grandfathered (people can still claim a tax deduction on existing investments). Negative gearing will remain for new builds, which will encourage more supply. To say that the abolition of negative gearing had a devastating effect on the rental market in the 80s is an outright lie. The MacroBusiness blog has refuted this property lobby claim with facts and data on countless occasions.

Stockland should be celebrating, because it will direct more capital into housing construction, which is what it does. So why is the CEO lying about it? What does he have to fear? I’ll tell you…


THE POWER OF STOCKLAND
Stockland is one of the largest land bankers in Australia. It has a huge amount of land on its balance sheet that it drip-feeds onto the market. Restricted supply and the current tax set up favours Stockland enormously. It leads to a continual increase in land values, which increases the overall value of Stockland’s assets. Developing the land and selling houses is all well and good, but it’s the increase in land value that Stockland wants to see. This is why Labor’s policy could restrict supply. The land bankers might just hold it back to create a supply shortage.

Labor’s policy (if they get elected) threatens Stockland’s ability to effortlessly earn the ‘rents’ from the land. Which is why they are called ‘rent-seekers’. It’s also why Labor will have a tough time getting elected. There is a very powerful property lobby in this country. A lot of people make money off the land…not from working it — in the farming sense — but from not working it at all. They collect the rents and want policies, designed to increase land value, at the expense of productive investment.

Have you ever wondered why the Aussie stock market is so far below its 2007 high? I would suggest it has something to do with capital shunning productive investment, betting it instead on land price appreciation. And that’s because of the favourable policy settings that almost guarantee land price appreciation at the expense of everything else. So good on Labor for trying to break this rent-seeking obsession that Australia has. I’m not sure whether they will get it over the line, but at least they’re getting people talking.

Greg Canavan,

For The Daily Reckoning

https://www.dailyreckoning.com.au/why-stocklands-ceo-has-to-lie-about-negative-gearing/2016/02/15/
Tags: archive, australian economy, australian politics
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