January 25, 2017 by Dymphna 10 Comments

Negatively gearing the family home?

In America you can negatively gear the family home… Could it happen here?

I don’t know if it was a bit of a media beat-up (I think it probably was), but there was a bit of speculation last week that the government might allow people to claim tax deductions on the cost of the mortgage on their PPR.

The Guardian was running the story:

On Thursday Michael Sukkar, whose responsibilities include housing affordability, told Sky News the government wanted to give people a “realistic opportunity to save and purchase a home”.

Asked whether the government would consider adopting the US system where owner-occupiers deduct the cost of their mortgages from their tax bill, Sukkar said there was no “silver bullet” for housing affordability, including that option.

Sukkar suggested housing supply, not decreased demand, was the most important factor and reiterated government policy not to follow Labor’s lead by restricting negative gearing or reducing capital gains tax concessions.

But asked to rule out allowing owner-occupiers a new tax deduction to compete with investors, Sukkar said only: “I will examine, and I know that the treasurer will look at, all good ideas… 

Asked if the owner-occupier deduction was under active consideration, a spokeswoman for Scott Morrison told Guardian Australia: “Housing affordability will be an important policy focus of the Turnbull government in this parliamentary term.”

 This is classic media b.s. Ask a politician to make a definitive statement on something highly speculative from out of left field, then take their refusal to rule it as evidence of a ‘secret agenda’.

However, it also runs both ways. Sometime politicians will test the waters by floating some thought bubble or another through the media – see how much support or resistance it attracts.

So since we’re talking about it, what do I think of the idea? And could it happen?

It’s true that affordability has become a red-hot topic, and in that context, we could see some ‘creative’ ideas like this get up. We’ve always worried about our kids having to live in bus shelters, but now retiring baby-boomers are realising that they’re on the hook to.

Digital Finance Analytics reckon that over 50% of first homebuyers are borrowing something from their parents to pull their deposit together.

And so now retirees are caught between a rock and a hard place – between the retirement they deserve, and wanting to see their kids with a roof over their heads.

… and all at a time when pensions are under pressure.

And so now affordability is everyone’s problem. It’s not just a bummer for the young.

And so what is the government currently bringing to the party? Precisely nothing.

The parliamentary inquiry into housing affordability – which was scrapped and then reinstated again – quietly made its report in December.

It made precisely zero policy recommendations.

Labor called it “a complete waste of tax-payers money” and of course they would say that, but for a committee to spend several years coming up with zero recommendations on one of the hottest topics in the country, it’s hard not to reach the same conclusion.

And the government seems determined not to do anything about affordability. They’re running the line that it’s a supply issue – and that’s partly true – but that’s a convenient line to run when land supply is a responsibility of the states.

And so the public is clamouring for action. The government is determined to do nothing to rock the boat. Enter tax-deductions on the family home – could it get up?

It would certainly give the government bragging rights. You want action? Here’s some action.

Would it be effective? Well, I doubt it. Giving financial support to all segments of the market – first time buyers as well as owner-occupiers – isn’t going to do much to advantage first time buyers by them selves.

Most likely, house prices will be bid up across the board, and FHBs will be about where they are now.

The politics is also a little awkward because the government has been running the line that negative gearing doesn’t give investors an unfair advantage. That’s a hard line to hold when you’re selling the exact same mechanism as an advantage for FHBs.

It’s either an advantage or it’s not. You can’t have it both ways.

So I think the politics probably makes it unlikely. I think the government will probably find other ways to throw money at the property market if it feels it needs to.

And in a way, that’s a bit of a shame. I like the idea in principal. Housing is a basic need. It isn’t a luxury item. You spend money on housing whether you like it or not. And I think there could be a role for government in helping everyone enjoy the stability and wealth-creating power of owning your own home.

So there’s a few things to be said for it.

But for the time-being, I think the idea is a non-starter.

What do you think? Good idea? Could it happen?