Real estate

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Judge Rules CalPERS Violated Bagley-Keene Open Meeting Act by Holding Improper Closed Session After Ben Meng Resignation

Published by Anonymous (not verified) on Tue, 21/12/2021 - 10:51pm in

CalPERS got a bloody nose in court. Maybe the board will wise up and behave better in the future.

Foreclosure Looms for Homeowners Who Thought They’d Won, Thanks to Top New York Court Ruling

Published by Anonymous (not verified) on Wed, 01/12/2021 - 1:55am in

Foreclosure suits from the financial crisis era get a new life thanks to a ruling by a conflicted New York judge.

Now it’s Liberals telling us we are going to have to cut the capital gains tax concession if we want to get Australians into homes

Published by Anonymous (not verified) on Wed, 27/10/2021 - 4:35pm in

NSW is doing what Labor’s Bill Shorten could not – explaining why Australia’s capital gains tax concession is knocking first home buyers out of homes.

Shorten went to the 2016 and 2019 elections with a plan – Labor would halve the capital gains tax concession used by landlords who buy and sell properties.

In much the same way as he was unable to sell his (now modest by international standards) plan to make half of all new car sales electric by 2030, he was pilloried by Morrision and before him Malcolm Turnbull for a policy they said would smash house prices.

All Shorten was proposing was to wind back the capital gains tax exemption (which exempts from tax half of each profit made from buying and sell real estate and other assets) for future transactions only. The exemption would stay in place for everything already bought.

In the face of an overblown debate about whether or not it would smash house prices (Morrison’s department had quietly warned such claims were “not consistent with our advice”) the Labor leader found himself defending modelling about prices rather than outlining what his policy would actually do.

And he lost, twice.

Now, as we prepare for yet another election, the NSW Coalition government has done what Australia’s Labor opposition could not – make a cogent argument for winding back the capital gains tax concession, saying it “pushes first home buyers out of the market”.

Elbowing first home buyers aside

In a submission placed quietly on the federal government’s housing inquiry website late last week the NSW government argued that if the concession was cut, housing would be used “more for accommodation needs than investment needs”.

Here’s the line of thinking it set out, the line Shorten was never able to get across.

The income made from capital gains – from buying something, holding it, then selling it at a profit – is taxed differently from the income made from work or running a business. Only half of it is taxed.

Prime Minister John Howard and his treasurer Peter Costello were responsible for the change, introduced in 1999 in the leadup to the introduction of the goods and services tax in 2000, but with less fanfare.

Before then capital gains were taxed in the same way as other income (what they are subject to is income tax, there is no such thing as a separate capital gains tax).

But before then only the portion of each gain over and above the rate of inflation was taxed, so that people weren’t taxed on a profit that would have no real value.

The change, introduced after an inquiry that found it would “encourage a greater level of investment, particularly in innovative, high-growth companies” was to instead tax only half of each capital gain.

It was sold as a small change. A few years earlier, inflation had been big, around 8% per year, meaning that after five or so years only half of each profit would have been taxed in any event.

But inflation had since dived to a barely-noticeable 2%, where it has stayed for most of the past 20 years, making a guaranteed exemption from tax of half of each capital gain made trading property way over the odds.

It was, as economist Rory Robertson told his clients at the time, “almost as though the Australian tax system has been screaming at taxpayers to gear up to earn increased capital gains rather than to work harder to earn increased wages”.

Instead of pouring into high-growth companies, as Howard’s inquiry said it expected, the money flooded into housing, which was easier to borrow for.

Rushing into real estate rather than shares

As Reserve Bank assistant governor Luci Ellis told a parliamentary inquiry, it was “more profitable to negatively gear property, because you can gear it more”.

To buy properties quickly, real estate investors needed to buy properties that would have otherwise been bought to live in.

It pushed up prices, but that wasn’t all it did.

As the NSW submission to the current housing inquiry says, the most significant impact was “the displacement of owner occupiers (including first home buyers) from home ownership by tax-advantaged investors, predominantly those already on higher incomes”.

In its words

by encouraging investors to buy and hold property, the 50% capital gains discount increases investor demand for housing and pushes first home buyers out of the market

Before capital gains tax was halved and Australians dived into becoming landlords, more than 70% of Australian households owned the home in which they lived and one quarter rented.

At the latest count (itself four years old) only two thirds owned the place in which they lived and one third rented.

Labor has new friends

And properties are less well used. Because income from rent is no longer the chief motivation for holding property (these days most rental properties make a rental loss whereas before the capital gains tax change most made a profit) the NSW government believes more are remaining empty.

Now, when the capital gains from holding properties can be measured in hundreds of dollars per day, it would be an ideal time to wind back the capital gains tax discount. Its absence wouldn’t much hurt.

And it’s easy to forget that wasn’t what Labor was proposing. Shorten (twice) put forward something far more modest – leaving the tax discount for existing investments untouched and halving the discount for future investments.

It’s no longer Labor policy, but it was backed by the head of the Coalition’s Commission of Audit and the head of its financial system inquiry.

And it was of interest to the Business Council of Australia which pointed out that the discount “can distort investor behaviour, particularly at a time of rapid capital gains, such as in a housing or equity boom”.

Morrison’s opposition to it was hard to justify at the time. It’s harder now.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Peter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

Net Zero, Insulation, Boilers, and English Dampness, or Symbol Manipulators Versus Existing Conditions

Published by Anonymous (not verified) on Tue, 26/10/2021 - 8:40pm in

The English gas boiler as a microcosm of Anglosphere elites' inability to come up with realistic carbon reduction schemes.

Jim Chanos: China’s “Leveraged Prosperity” Model is Doomed. And That’s Not the Worst

Famed short-seller Jim Chanos is more concerned with political fallout from China's Evergrande than economic/financial woes.

New Report Highlights Corporate Funding of Police Foundations, Which Encourage Police Militarization and Thwart Reform

Published by Anonymous (not verified) on Tue, 19/10/2021 - 3:55am in

Corporations funnel significant funds to anti-reform police foundations, while publicly supporting PR campaigns for police reform.

As home prices soar beyond reach, we have a government inquiry almost designed not to tell us why

Published by Anonymous (not verified) on Wed, 13/10/2021 - 11:42am in

Never has an inquiry into the skyrocketing price of homes been more urgent.

Rarely has one been as insultingly ill-suited as the one under way right now.

Midway through last year in the midst of COVID, the average forecast of the 22 leading economists who took part in The Conversation mid-year survey was for no increase in home prices whatsoever in the year ahead (actually for slight falls).

At that time the typical (median) Sydney house price was A$1 million, where it stayed until the end of the year.

Then it took off. In the ten months to the start of this month the typical Sydney house price soared $300,000 to $1.3 million – a breathtaking increase (and an awfully big penalty for delaying buying) of $1,000 each day.

For apartments, the increase isn’t as big, although still extraordinary. The cost of delaying buying a typical Sydney apartment has been $334 each day.

The cost of delaying buying a typical Melbourne house has been close to $600 per day, the cost of delaying buying a typical Melbourne apartment $150 per day.

In that time, in the year in which the typical Australian home price climbed 20.3%, the typical Australian wage climbed just 1.7%

What people stretched to the limit or now locked out of the housing market are desperate to know is

  • why it is happening

  • when it is likely to stop

  • what (if anything) we can do about it.

Instead, we have been given an inquiry into affordability in name only. Seriously. The parliamentary inquiry commissioned by the treasurer in July and chaired by backbencher Jason Falinski is called an inquiry into affordability and supply, but the word “affordability” appears in none of its three terms of reference.

It’s an inquiry into ‘supply’

Instead, the terms of reference refer to the impact of taxes, charges and other things settings on “housing supply”.

I guess the idea is that it is obvious that supply is the key to affordability, but it rather negates the idea of holding an inquiry, and it sits oddly with the explosion in prices we have seen in a year in which building approvals have surged by a near-record 224,000 and our population has as good as stayed still.

In its submission to the inquiry the Reserve Bank includes a graph showing the supply of housing (the stock of houses and apartments) outpacing population growth for the best part of the decade leading up to the latest price explosion.

Supply has been holding up

But in a sense (and stay with me here) whoever drafted the restricted terms of reference is right. Housing affordability is linked to the supply of housing.

And housing affordability has been doing okay.

In evidence to the inquiry last month Treasury assistant secretary John Swieringa drew a distinction between housing affordability (best measured by the cost of renting housing) and the cost of buying a house, which was partly an investment.

When you are a purchaser of a house you are partly investing in an asset and partly buying dwelling services; whereas when you are renting it’s probably a cleaner read on what cost dwelling services is.

That clean read – rent as a proportion of income – hasn’t much changed in 20 years. For middle earners it has remained comfortably between 20% and 25% of household disposable income.

The Reserve Bank says advertised rents for units in Sydney and Melbourne have drifted down by $30 to $50 per week over the past five years while rents in other places have mostly drifted higher.

As it happens, it says another measure of housing affordability is improving.

The cost of home loan payments as a proportion of income has been falling since the onset of COVID. Dramatically lower interest rates mean payments take up less household disposable income than they did five years ago, even with the much higher prices.

The problem is accessibility

What has worsened is what the Reserve Bank calls “housing accessibility”, to distinguish it from housing affordability.

Accessibility is the ability of a first time owner or renter to get into the market at all by finding the deposit or bond.

Astounding price growth and five years of weak income growth have pushed up the cost of an average first home deposit from 70% of income to more than 80%.

On average it now takes a 24-35 year old nine years of tucking away one fifth of their income each year to save for a typical Sydney deposit, up from five to six years a decade ago.

Average First Home Buyer Deposit

Owner-occupier; estimated as a share of average annual household disposable income using average first home buyer commitment size and assuming 20 per cent deposit. Seasonally adjusted and break-adjusted. RBA, ABS

It’s okay if you have a parent who can get their hands on money, almost impossible if you don’t. In the words of former Reserve Bank official Peter Tulip, it’s making home ownership hereditary.

He’s not the first person to have noticed.

Liberal backbencher John Alexander chaired the Coalition’s 2015 inquiry into home ownership. He said then we were “on track to becoming a Kingdom where the Lords own all the land and the biggest Lord will be King and the enslaved serf tenant is paying rent to the Lord to become wealthier”.

Ownership is becoming hereditary

Prime Minister Turnbull and Treasurer Scott Morrison used the 2016 election (in which they attacked Labor’s plan to limit tax breaks for landlords) to shut down Alexander’s inquiry, and only agreed to restart it with someone else as chair. It had considered 30 hours of evidence.

The chair of this current (limited) inquiry seems unperturbed.

He opened September’s hearings saying no question was off-limits, no idea too stupid, all forms of inquiry were worthwhile. It’d be great if that was true.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Peter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

Incomes Got Chewed Up by Inflation. Americans Spent Heroically on Goods, But Not on Services. Eviction Moratoriums & Forbearance Implicated

Published by Anonymous (not verified) on Sat, 02/10/2021 - 6:35pm in

Consumers have made big changed to their spending patterns in response to inflation.

Michael Hudson and Thomas Piketty Debate Inequality, Debt, and Reform

Thomas Piketty and Micheal Hudson address "What is debt," and also address inequality, rentierism, and reform in the West and China.

Can China’s Outsized Real Estate Sector Amplify a Delta-Induced Slowdown?

Published by Anonymous (not verified) on Tue, 21/09/2021 - 7:26pm in

Whether by accident or design, the implosion of China's Evergrande will take some air out of its inflated real estate sector. What then?

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