A lateral solution to Housing affordability and why winding back negative gearing is not the answer
By Adrian Fitzgerald
About myself
I am a young Australian, who has built his wealth from scratch, I inherited nothing, my parents were divorced, and both of them are ‘renters’, not home owners. I do not go on holidays overseas, and I use my annual leave to work a second job. I invest the money that I earn, and because I am young enough I choose to negatively gear, as it allows me to hold a larger portfolio. I do make a loss each year, but the tax break I gain is further invested, not to mention used to support local business.
In the process of holding this portfolio I employ local tradesman for repairs, and local real estate agents to manage the properties. Not to mention that I pay nearly 10k per annum in council rates, and a further 4k per annum in land taxes and water rates.
I have made heavy sacrifices, and worked very hard to be where I am today, and I do this so that when I have a family they can have a better life than I have had. I do this so that I do not need to rely on the country to support my family and I do this so that I do not need to ask the country to support me in my old age.
Why am I the enemy of Australia?
Negative Gearing used by those trying to build wealth not the already wealthy
Negative gearing implies a loss, it is a risk taken by people who need to be leveraged to make money. The so-called ‘wealthy’ Australians that people accuse of using negative gearing do not need to make a loss, and do not need to be so highly leveraged that their interest repayments exceed their earnings from their business ventures. It is hard working Australian’s trying to build wealth and build a better life for themselves that are using negative gearing.
Why should this mechanism, that allows hard working Australian’s not born into wealth to compete with the wealthy for investments be revoked or wound back?
Some would say because it makes housing unaffordable – I would argue that housing affordability is not the issue that some would claim that it is
The housing affordability crisis – facts and fiction
Whilst it is true that house price to income ratios have become far less favourable for my generation than previous generations there are a number of factors that are always ignored. For starters, the rise in the gap between house price and income can largely be attributed to the shift in Australian society from a single income society to a double income society. There may be social policy arguments for and against that point, but the simple fact of the matter is we are a double income society, thus, people can afford to pay more for housing.
The next point is the expectations of my generation (gen y). Everyone wants to live in inner city Melbourne or Sydney, and not only do they want that, they want to be able to do it on a single median income, at age 28 after spending ages 18 through 27 earning below the median income and either studying or travelling overseas. This sort of expectation is nonsense, and what has caused these expectations is a social and education policy argument for another day, but for my generation to believe that they are some how hard done by because they cannot afford to live in the inner city is simply nonsense.
Show me a generation before me that could have possibly afforded inner city apartments in their twenties after travelling all over Europe in their early twenties and then walking into a median income job?
Most importantly, why should generation y Australian’s like myself who have worked their guts out to earn a salary well over the median income, and who have not taken time off overseas now be punished for their efforts with the removal of negative gearing because of others who have not worked as hard?
Having said that, house prices in the capital cities are high and everyone wants to live in them.
A lateral solution to housing affordability
The solutions that I constantly see for housing affordability seem to always fit in a box, bounded by negative gearing, stamp duty concessions, first home owner grants and restrictions on overseas investment. What I do not see is any broader scale thinking outside of this box.
It is a crowded little box, and people argue for one or a number of these things vehemently. The simple fact of the matter is that all of these things have been tried, either in Australia or globally and generally have either failed completely, become too expensive or have caused more problems than they have solved.
It is time to come up with a cheap, effective way to combat housing affordability and I propose that we let industry fight the battle for us, both big and small business, in a way that is beneficial to them, to the Australian economy and to the working families of Australia looking to purchase a home.
Australia is a growing population with 63 percent of NSW residents living in Sydney, and 71 percent of Victorian’s living in Melbourne, South Australia and Western Australia paint a similar picture regarding population distribution, with Tasmania, the Northern Territory and Queensland being nearer to 40-50 percent of their total citizens living in their respective Capital cities.
At present, the nation’s revenue is simply too low to really address the shortfalls in infrastructure for our major city’s outer suburbs, and as such, Australian’s are forced to cram into the CBDs, driving up demand for property in those areas and resultantly the property prices.
So in order to get by, Australian families are faced with a heartbreaking choice, spend hours per day commuting, or be put under housing affordability strain by living closer to the city.
This has to stop. It is inhumane but most of all, completely unnecessary in a country this size.
Sure, in a world of limitless capital, we would attack the issue with bigger, better roads, faster and more frequent train services. Cutting down on the commute and making our outer suburbs more liveable and more attractive to our citizens. Allowing them affordable housing, and more time with their families.
Evidently, we either lack the resolve or cohesion to achieve this as a nation, or we simply do not have enough revenue. Perhaps we can revisit these infrastructure issues when the iron ore prices rise and the Australian economy gets a second shot.
In the meantime though, we need real world, affordable solutions, and I have a simple one.
Tax incentives for businesses operating in rural and regional towns and cities
Cut the company tax rate for businesses who set up operations in our rural and regional towns and cities.
Bendigo, Ballarat, Benalla,Latrobe City, Warrnambool, Shepparton, Swan Hill, Wangaratta, Albury-Wodonga, Orange, Dubbo, Goulburn, Armidale, Broken Hill, the blue mountains, Alice springs, Bundaberg, Cairns, Townsville, Rockhampton, Mackay, Whyalla, Mount Gambier, Port Lincoln, Devonport and Launceston to name a few.
It is time to grow these and other cities.
We cannot continue to grow our nation’s population if we continue to try to cram 7 in 10 Australians (if not more), into Sydney, Melbourne, Brisbane, Darwin, Perth, Adelaide and Hobart.
If we give business, big and small, incentives to move as much of their operations as possible out of the major cities, then we can boost employment regionally and rurally. Allowing Australian’s of all levels of education to find gainful employment outside of the major cities, giving families their lives back, with more disposable income – to spend within the Australian economy - by reducing their mortgage or rental stress. And more time with their loved ones by cutting their commute.
Moving people out of the Major cities will also likely reduce the percentage of the population that is renting, increasing home ownership rates, which is imperative for social cohesion as home ownership helps Australian’s to feel as though they have a stake in their country’s wins and a stake in their country’s losses, encouraging them to work hard, and work together for the betterment of the Nation.