Insane tax breaks yes, but in general there is not limited supply. Rental vacancy rates are rising, rental yields are dropping, which would indicate that we have more than enough housing for the number of people in the country.
Further, a group called LF economics did a study on this - some graphs on page 22 here - http://www.aph.gov.au/DocumentStore.ashx?id=cafe7b04-e06c-4e... (PDF warning - it's a submission to the recent enquiry on house prices). Turns out that they found most Australian markets are in oversupply at the moment. They also found no correlation between supply and prices over the last 30 years, and have some points in there for why that would be the case.
In the end, it's more the availability of credit that determines the prices, not supply and demand.
>Interest on an investment loan for an income producing purpose is fully deductible if the income falls short of the interest payable. The shortfall can be deducted for tax purposes from income from other sources, such as the wage or salary income of the investor.
Negative gearing is only one piece of the puzzle. There is also a 50% CGT discount if you hold an investment for more than a year.
And yes, it applies to shares too, but it's not possible to get this amount of debt leverage for buying shares.
There is also 100% CGT exemption if the property is owner-occupied. The worst part is that it extends up to 6 years after you move out (e.g. to rent somewhere cheaper). So you can buy a property, live in it for a year (at which point it's deemed primary residence), then rent it out for up to 6 years, move back in for a year, rinse, repeat, and avoid paying any CGT when you sell. Obligatory: none of this is tax advice.
Centrelink has been speculatively invoicing people to recover undeserved welfare payments based on crude data matching with income tax datasets.
How nice it would be if they did some data matching to determine who was actually living in a property as their primary residence, vs. changed their mailing address to that of their residential property to pretend it was their primary dwelling, and issued invoices for unpaid CGT.
Given foregone tax from the CGT discount and negative gearing represent significantly larger sums than that spent on Newstart, chasing property investors would seem to be lower hanging fruit...
They most certainly do chase property investors who do claim incorrect primary residence. Remember primary place of residence is only while you live there so if you change it one month before selling it only offsets one month of profits and what if you have multiple properties you can't hide it all with that.
However the bigger problem remains that capital is taxed at half the rate of labour and this matched with tax free pensions has meant people with built up capital have gotten extraordinarily rich in the past decade and a half at the expense generally of the younger generation.
Are you sure about that part about only while you live there?
I have friends who tell me they "need" (well, want to) live in their investment property for 6 months every few years, in order to get a refresh on their tax breaks?
They are not at all equivalent. Shares are a lot more volatile, and your guess needs to be accurate within a very short term or you lose 100% of your investment.
> your guess needs to be accurate within a very short term or you lose 100% of your investment.
It's also easy to lose 100% of your investment when you buy property with leverage. At least with a call option you can't lose more than your initial investment. You can with property, unless you live in a jurisdiction which cancels the outstanding loan on a property after it's repossessed by the lender.
Perhaps your point is that, with a property purchase, you can ignore short term price movements. As long as you have enough money to pay the mortgage each month, you get 100% exposure to the price increase over 25 years, even though you put only 10% down and borrowed the rest.
The volatility doesn't matter. If I buy a 1-year call option on a particular share, it doesn't matter if the price goes up and down every day during that year. What matters is the price at the time the option expires.
What _does_ matter, and this may have been what you were thinking, is that it's hard to buy a long term call option on an individual share. The longest you can buy easily is probably 2 years, which is much less than the length of a mortgage.
As well as negative gearing, there is also the main residence exemption from capital gains tax. Aside from the tax system, residences are also assessed differently from other wealth when determining if someone should receive the old-age pension.
Further, a group called LF economics did a study on this - some graphs on page 22 here - http://www.aph.gov.au/DocumentStore.ashx?id=cafe7b04-e06c-4e... (PDF warning - it's a submission to the recent enquiry on house prices). Turns out that they found most Australian markets are in oversupply at the moment. They also found no correlation between supply and prices over the last 30 years, and have some points in there for why that would be the case.
In the end, it's more the availability of credit that determines the prices, not supply and demand.