Its unfortunate. I had 2 blokes, a chinese and lebanese fella talk to me aboit generational wealth 20 odd years ago and how Aussies have no concept of it. Aussies typically have an idea of spending it all before you die. That is how you end up with people in their 20s unable to afford houses. Surely everyone played monopoly as a kid.
It kind of is though. The more you apply yourself in life, the more you get out of it. I work around 100 hours a week. Its a long game and it pays off. Im sure i could work 75 hours a week and still be comfortable but i like working. I know blokes happy to do 35 hours a week go to the pub and piss and gamble it all away then complain about high rent and never owning a house. Im talking two ends of a spectrum but it just seems a bit rich.
There is always talk of taxing multiple property owners in new ways. Ive read people suggesting my kids should pay tax on the properties they will inherit. Its kind of relevant when Iâm taxed on multiple levels and there is talks of assing another level or increasing tax
Generational wealth is holding wealth and passing it down from generation to generation and tleach generation working towards building more wealth. All wealth is earned you just cant take it with you.
The part that youâre missing in the comparison is this.
Housing as an investment are popular because
a) they generate income passively via rent which dramatically reduces the cost of ownership unlike other investments.
b) they are a finite resource whose supply grows slower than demand while also being a basic human need.
c) there are tax incentives which further warp the attractiveness including negative gearing and a 50% discount on CGT.
Access to a gym is not at all comparable, it is not a basic human need.
House prices and rent are being driven to levels beyond the means of the average person, this is not economically healthy and is unsustainable.
People are NOT talking about adding extra taxes, they are talking about removing the incentives which other investments simply do not have like negative gearing and CGT discounts for investment properties. People want to do this because the housing market is a speculative bubble where prices have nothing to do with inherent value.
I lived in Japan in the aftermath of the 80âs property bubble, you should read up on it because itâs happening here and people in Japan thought it would never burst, when it did, entire generations found themseves holding mortgages 4 x bigger than the value of the property they owned. They went from having what they thought was generational wealth to having less than nothing,
I managed to get in on the âproperty ladderâ and then my marriage ended and now I am off the property ladder and donât see any chance of getting back on any time soon.
This thread, and in general this life, is a pretty depressing thing to look at each day.
I could argue the point around this, the historical privileges that allow us to be in this position, the privilege and luck of good health, etc, but for arguments sake letâs say youâre right. You worked hard and earned a deposit instead of working 35 hours and âbeing lazyâ.
The moment you buy a property with it, your relationship to that money fundamentally changes. Itâs now building equity, through virtue of being a capital asset that people need. Furthermore, itâs one that people will pay you for owning - in fact, they have to pay you, or someone like you, or be homeless.
From the moment youâve bought the property, youâre not just someone who worked hard - youâre someone who is making wealth by extracting it from others.
Although I 100% agree with you, just a couple of points of correction that I think need to be made (emphasis mine):
All investment classes typically generate some form of passive income, so it isnât just limited to property investment. Shares pay dividends. Capital notes, bonds, and other debt instruments yield interest. The fact that property generates income through rent doesnât make it different to other forms of investment.
Any investment can be negatively geared, and similarly any investment held for longer than 12 months gets the CGT discount. If you borrow money to buy shares and the interest on that loan is higher than the return you get in income (dividends), the shortfall can be used to offset your other income and reduce your tax.
In summary, investment property doesnât receive any preferential tax treatment when compared to other investment classes.
Now with that all said, unlike other forms of investment, property holds a unique position of also being a human need. So you could definitely argue (and I do) that, because of it being a fundamental human need, that those incentives SHOULDNâT apply to properties that are owned for investment (excluding principal place of residence).
Remove those incentives, and the investment money will flow out of property into the other investment classes where the incentives still apply, removing one of the main contributing factors inflating property prices. It wonât directly solve the scarcity issue, or any of the supply/demand issues, but indirectly it would influence where investors will park their money by making property less attractive (which is a good thing).
Itâs pretty crazy how the last generation who knew how to work hard and make sacrifices also happened to be house-buying age at the last time the housing market was sensible.
It absolutely is different when rent covers the vast majority of the cost of purchase, which dividends donât do at all.
Investments like shares canât be negatively geared in the same way, you buy shares and cannot write off losses till you sell them, there is no maintenance cost for shares or other similar financial instruments, negative gearing assists in maintenance and even renovation cost reduction in a manner that isnât applicable or available elsewhere.
I think youve missunderstood the comparison.
The comparison is not investing time in a gym vs money in real estate. It is investing effort into a gym to look strong/fit vs investing effort into making money to increase wealth. The greater effort that is put into anything, the greater the result.
Look, Iâve played monopoly before. I get it. When you own all the realestate, you take everyones money and win the game. Peolpe get upset. Im not looking to create wealth through the most ethical means. Iâm looking purely at profit. The worldâs always been dog eat dog.
There are maybe 10 countries in the world like australia. The rest are on a level playing field. We are the minority and its not long before everything finds a way of balancing out. We will end up with poverty here in time just like the other 184 countries in the world. Im just working towards securing a future for my family and beyond.
Untrue. Youâre confusing capital growth with income.
Capital gain (or loss) isnât realised until you dispose of the asset. But income is declared in the financial year you receive it, and that is what makes negative gearing attractive.
When you negatively gear something, not only do you offset the loss (expenses - income) from your other income for that year, but you can also have your regular tax withholding (from your salary etc.) adjusted to account for an expected loss at the end of the year.
That is, you can have your employer withhold less tax each pay period on the basis that you were going to claim a loss on your tax return from negatively geared investments.
From the Treasury link I posted earlier:
Assets like shares can also be negatively geared. In 2012-13, about 270,000 people deducted over $1.2 billion for expenses incurred in earning dividend income.
Consider these two examples:
Jubal borrows $2M from the bank to purchase an investment property. Interest on the mortgage is 5% p.a., so $100k per year in interest. Rent is $1200/week, so $62,400 in income. Not including any other maintenance or management costs, thatâs a loss of $37,600 that offsets Jubalâs other income for that year.
Hilly borrows $2M from the bank to purchase BHP shares. Interest on the loan is 10% p.a., so $200k per year in interest. Dividend yield is 5% (ignore franking for a second), so $100,000 in income. Not including any other maintenance or management costs, thatâs a loss of $100,000 that offsets Hillyâs other income for that year.
In both cases, the asset hasnât been disposed of, so no capital gain or loss has been realised; but both are negatively geared and reduce other taxable income for that year.
If you work 100 hr weeks instead of 40 hr weeks your reward is 60 hrs of extra income, not special immunity from risk for whatever youâve done with that extra income. The ability to accumulate wealth through property investment isnât a divine right or universal truth. Itâs a choice that Australians have voted for recently. But they might not always vote for it. Thatâs the risk that you take on when you invest in it.
On inheritance tax, no one chooses the circumstances into which theyâre born. Your kids and other kids both did nothing except be born. Why should your kids get a windfall gain? Because their dead father worked 100 hr weeks? The other kids had no control over the number of hrs that their parents worked so why donât they deserve a piece of that windfall? They were born too.
I didnât get in on the property ladder and was forced to sell, but Iâm in the same boat now.
(Though I am severely limited to where I can live) I earn 6 figures and I still have zero chance in being able to afford to buy something livable in Sydney on my wage. Forget supporting a wife/child if I had the chance. In my situation, the best hope I have to buy somewhere is to move to Canberra (gross) and stretch myself like crazy, eating a tin of beans once a day and never leaving my house. Or I could become what I hated and throw my life savings at a unit somewhere to rent out, only to get raped by shitty strata companies who are run by the same shitty builders who built the place to cover their shitty work. And if they get caught it, they just phoenix the company and start again.
But donât worry, some bloke with 5 houses is getting his investment paid off for him by some poor mug who needs somewhere to live, whilst it doubles in value every decade, and do it again and again and again.
