Originally Posted by
elZorro
No, your argument doesn't wash, FP. You're saying that generally the two major figures in the profit/loss accounts for landlords are Rental Income (Cr), and Interest Expense (Dr). As well as inflation and appreciation paying off the asset for landlords over time, the interest cost and maintenance expenses will initially exceed any income, often resulting in a tax refund from the govt. This is normally offset against PAYE or other income tax due by the landlord, from other activities in the same year.
Normally in a trading activity, the taxes and tax refunds carry on through each stage until the end-user, in this case the renter, is stuck with the full cost on their tax-paid income. Yes, it's true that landlords' activities help keep banks afloat and that they, in turn, pay taxes on their substantial profits, if they can be pinned down properly that is.
But is it not also true that the game being played by many landlords is generally to keep overall interest costs close to rental returns, by buying more assets over time, not worrying about any capital repayments, just inflation and appreciation in heady markets sustained by more immigration? This plan works fine when everything is moving up, not so good when it's going the other way. A lot of rental houses came back on the market in the last downturn.
It's a business, sometimes a risky business, but it doesn't employ many in view of the capital used, it doesn't export anything, it sometimes slows the regeneration of housing stock, and the owners of these businesses don't work many hours, or end up paying any tax on their gains, or much tax while they are trading. A normal commercial business can be built from the ground up, will probably employ people (PAYE), and to be successful will need to reward the hardworking owner every year, and pay taxes, (income) plus collect and forward GST unless they are exporting. At the moment any capital gain in the business is also tax-free on sale, but you see the difference? The business will have needed to pay tax all the way through, or offer real potential, to be worth anything to a buyer. Not so with rental properties. They are worth what the market says they are worth, and other entrants to the rental market help set that price at every auction.