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Ben Kingsley Blog post by Ben Kingsley

Property Market ‘Too Important to Fail’

Imagine a situation where what you’re investing in, is also so critical to the overall economy in which that investment is found, that if it failed it would severely cripple the economy and standard of living of its population. You don’t really have to imagine too hard, because that is exactly the situation we have in the Australian market.

Thanks to government decisions of yester year, all three levels of government of the current day are so reliant on revenue generated by residential property that any serious adjustment in value will result in chronic shortage of revenue for governments to function.

Let’s look at local government and then work our way up to Federal level.

At local level the rates we pay are related to the valuation of our properties.  Imagine local government without the majority of their revenue. State government derives significant revenue from the stamp duty it receives for the transfer of property, not to mention the little additional taxes like mortgage registration and discharge fees.  Plus some property transactions attract GST, which flows into the State’s coffers. Federal government also gets its fair share of the property pie.  Increases in the value of property create a capital gains event if the property is sold.  Again this tax drives a huge amount of revenue for governments.

Those not convinced of the ’real bottom line’ importance of a growing property market could argue that negative gearing gives back some of this tax revenue, but the reality is the government knows that if it had to supply housing for these people it would be out of pocket significantly more than what it returns to property investors from a negative gearing perspective, that’s why it’s here to stay.

During the GFC the quote was the banks were ‘too big to fail’, so they guaranteed them, but if there was ever an event that resulted in property prices experiencing a wholesale drop in values greater than 10% , then it will have far broader reaches to the nation that just someone losing 10% of their investment’s value.

That’s why government stage manages residential property so closely, as it’s too important for all the governments of the day to have such a hit on revenue, and I’m only talking about direct taxes.  There is also the indirect taxes through the wages of builders, suppliers, manufactures, retailers etc that work within the industry and then retail staff selling the appliances, beds etc, etc, etc. Again ‘Too Important to Fail’.

Simply another overwhelming reason I invest in residential property – Nothing better than a hidden government guarantee on future values increases, as no political party could continue to hold government  slashing government spending by 10% or more.

 

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