Thursday, May 11, 2017

The Landlords' Budget

It's been dubbed the Budget that forgot the renters, but chances are your landlord is pretty happy with he 2017 Federal Budget's housing affordability measures. With first home buyer incentives that will push prices higher, and new rewards for speculative investment, this should be the stuff of landlords' dreams.

Let's take a quick look. We'll see what Lenny the Landlord - pictured below - thinks of the Budget's headline measures.

ABC TV's The Checkout presents: the landlord. Let's call him Lenny.
First up - unlocking supply. The Turnbull Government says it will ease restrictions that are holding back housing supply by sorting out some of the planning and zoning issues that make it hard for developers to build enough properties for landlords to invest in. They'll throw some money towards infrastructure upgrades to make sure developers don't have to worry too much about installing water supply pipes and sewerage systems, and so that future residents of new developments don't get too bogged down in traffic jams on their way to work every morning. They'll even tip in a bit of surplus land to help kick things off.

Lenny the Landlord says he quite likes these ideas. "Anything that gets me off the hook on housing affordability, I'm all for it," he grins. "As long as my high mortgage costs can continue to keep my tax bills down, I'm one happy chappie". A brief shadow of doubt creeps over him as he wonders whether all this fast-tracked supply could affect his longer term capital gains. His delight is palpable when he realises the measures would almost certainly result in higher land values where applied. "Forget the accountant," he chortles, "I'm heading straight to see my mortgage broker. Gotta get in on the ground floor, right?"

Next - creating the right incentives. The Turnbull Government says it is taking "prudent steps" to provide the right incentives for home-owners by allowing first home-buyers to make voluntary contributions to their super fund in the hope of saving for a deposit, and allowing older home-owners to top-up their super funds with the proceeds of sale. They'll also try to limit foreign investment by requiring half of all new supply to be sold to domestic buyers, and they'll prevent foreign investors from sneaking off without paying capital gains tax. What's more, they'll sting foreign investors with a levy unless they rent their places out for at least six months of every year.

Lenny the Landlord says he's a little worried about the impact of reducing foreign investment, but on balance he's still a fan of these measures. "Look, I'll be honest with you, this first home-buyer thing is a bit of a worry," he says. "There's not enough of them around, which makes it harder for investors to get the very best price when it does come time to sell. Thankfully we've got a steady stream of internationals coming in to stem the flow - capping the number of properties we make available to them could hurt. And who else can afford Australian property? I guess we might just have to settle for selling to other landlords in the long-run, so it's a good thing we've still got our tax perks."

When asked about a possible return of first home-buyer activity on the back of this Budget, Lenny laughs. "Yeah, please, that'd be great. Obviously this super fund thing is only going to help those who are already pretty much ready to buy - making sure they've got a bit of extra cash on hand to bid up prices is no skin off my nose." He thinks for a moment, and his eyes light up. "Actually, they might be able to bid up my property when it's time to cash out. That'd be, well... super!"

What does he think of the incentives for empty nesters? "Well, assuming some of them actually do it, I reckon it'd be good for those of us looking to pick up an extra investment property. More good homes on the market means more gains coming through hefty mortgages, makes it easier to ensure steady losses see, so you can get all the tax breaks and make it worth your while." He pulls out his mobile phone, but quickly puts it back in his pocket. "I must remember to make that call to my broker..."

The levy on empty houses? "Well, that's an interesting one," says Lenny. "I like the thought of foreigners having to rent their places out for six months at a time - that takes the pressure off me a bit. I can take my time between tenancies if I need to, keep the place vacant for a couple of months and still get my tax breaks. Bonus for me - with foreign investors evicting tenants every six months or so, there'll be plenty of competition for my place when I do put it back into the rental market. There'll be no trouble getting a little bit more rent here and there, so keeping my property empty every now and then could totally be worth it in the end!"

Lastly - improving outcomes for those most in need. The Turnbull Government says it will improve outcomes in social housing and homelessness by continuing to fund social housing landlords and homelessness services, encouraging "social impact investment", giving more tax breaks to landlords and creating a bond aggregator that will encourage private and institutional investment in new affordable housing products.

Lenny the Landlord says he's not really fussed with all this government housing business. "That's really not my concern," he mumbles. "I'm not running a charity here. I think the government should do that, so it's good they're doing that I guess".

When asked if the bond aggregator might prompt him to diversify his investment portfolio, he appears a little confused. "Diversify?" he asks. "What do you mean?" We briefly explain the proposed Affordable Housing Finance and Investment Corporation and how it could allow him to invest in other companies that would put money into the affordable housing sector. Perhaps he could even make a direct investment himself? He remains unsure. "Look, that all sounds interesting but I think I'll stick with what I know. I'm not sure investing in something other than the place I've got is a good idea. I mean what if some of this affordable whatchamacallit is built nearby, and my property ends up going down in value?"

"No, no," he says, reassuring himself. "We invest in property because we know prices always go up. Let me have another look at these new tax breaks you mentioned, they sound promising..." His mood picks up again. "You mean I can get an extra 10% off my capital gains tax if I give my place to one of these community housing dooverlackies for a few years to rent out at a smidge or two below the market? Sign me up! Heck, that means I could even sell the place a year or two earlier than I was thinking! I can start the ball rolling on buying the next one... and the next one... and the one after that..."

With that, Lenny the Landlord pulls out his mobile phone and walks off with a spring in his step.

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