A single digit percentage of actors in the market with the objective of not losing 100% of their capital by turning it into a hard asset in another country is sufficient to move the market.
In Australia it is the combination of negative gearing AND the 50% capital gains tax concession on investment properties. Average rental losses per negative gearer were reasonably constant and small up until 2001 when the 'sound economic manager' Costello introduced the CGT discount, intially for a limited time only to make up for the introduction of the GST. From 2001 onwards, claimed net rental losses have blown out significantly, such that the annual forgone tax is greater than what the federal government spends on universities. This is because the gains permitted with such generous CGT concessions more than make up for year-on-year rental losses. This strategy only makes sense when house prices are rising, which has been the case for ~20 years in Australia. Given that Australians are at, or close to the limit of their ability to take on more credit, real standards of living (real net disposable income per capita) have been falling for the last five years, it seems that the bubble may not be sustainable. Unless you internationalise the housing market and make it a place for turning cash into hard assests, like London.
A single digit percentage of actors in the market with the objective of not losing 100% of their capital by turning it into a hard asset in another country is sufficient to move the market.
In Australia it is the combination of negative gearing AND the 50% capital gains tax concession on investment properties. Average rental losses per negative gearer were reasonably constant and small up until 2001 when the 'sound economic manager' Costello introduced the CGT discount, intially for a limited time only to make up for the introduction of the GST. From 2001 onwards, claimed net rental losses have blown out significantly, such that the annual forgone tax is greater than what the federal government spends on universities. This is because the gains permitted with such generous CGT concessions more than make up for year-on-year rental losses. This strategy only makes sense when house prices are rising, which has been the case for ~20 years in Australia. Given that Australians are at, or close to the limit of their ability to take on more credit, real standards of living (real net disposable income per capita) have been falling for the last five years, it seems that the bubble may not be sustainable. Unless you internationalise the housing market and make it a place for turning cash into hard assests, like London.