"Governments might want to look at whether the current extent of negative gearing tax breaks are fostering an unhealthy focus on housing as an investment vehicle, thereby compounding affordability issues,'' ANZ Australian chief executive Phil Chronican has said.
Chronican told a business lunch last week that housing provides ''poor income returns and high transaction costs, and a lot of volatility in prices – particularly in the slower-growth environment''.
He added the housing market represents an "excessive concentration risk" for the Australian economy, noting locals have 60% of their wealth maintained in property portfolios.
Chronican's comments follow a piece by former ANZ economist and current Grattan Institute director Saul Eslake in Fairfax Media, where he argued that the current revenue foregone from negative gearing could be used to build affordable homes.
National Australia Bank business banking head Joseph Healy has also said banks are now too reliant on the housing market and should instead focus on credit-starved SMEs for growth.
SQM Research managing director Louis Christopher agrees the concept of negative gearing "has been getting a lot more attention... and it would be a very big move for the Government to do something".
Christopher says taking tax-effective investment away so suddenly would cause a number of different reactions, and it all depends on how the market performs.
"If this was to be taken away in a down market, it would aggravate house price falls. Yields would need to rise to make property attractive."
"If it was in a situation where prices were gaining ground but in a reasonably well-supplied market you wouldn't see a massive impact on rents. It all depends on what happens in the market and where it is at the time."
Christopher says the property market needs to become less tied to Government involvement.
"I'm all for less involvement in the property market. It ties the industry to the general economy, and we need to be in a place where we can have a housing correction and that doesn't smash the overall economy."
The Grattan Institute's Saul Eslake has previously argued that the revenue foregone through negative gearing could alternatively be used to build nearly 20,000 new "affordable" homes each year.
"Over a decade, that would make substantial (though still incomplete) inroads into the massive shortage of affordable housing that Australia now has," he wrote.
Meanwhile, auctions put in another underwhelming performance this weekend, with clearance rates still south of 60%.
Melbourne recorded a clearance rate of 58%, with the Real Estate Industry of Victoria saying "there is no doubt most buyers and sellers will be hoping that the Reserve Bank keeps interest rates stable when they meet on Tuesday".
In Sydney, clearance rates were at 54.7% with 188 reported sales, while Adelaide and Brisbane both recorded a 35.5% and 18.5% result.
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written by notkermit, June 06, 2011
It is also possible to negative gear investments in other areas in the hope of making capital growth. Will these also be affected by any possible changes
written by claudine Brownhill, June 06, 2011
Negative gearing and other incentives are designed to ensure a supply of rental properties are in the market. Pull those incentives and you risk the investors going elsewhere. The pro of that is that there are more houses on the market, and likely at reduced prices, the con is that those who have to rent will a.) Pay a LOT more to compete for the limited supply or b.) Not be able to affort to rent OR to buy (= government assistance costs go up).
The govt has a vested interest in investors providing housing for renters otherwise they will have to do it themselves. Add to that the vested interest the banks have in property (both volume and current pricing) and it will be interesting to see how this evolves.
Personally I think there are too many big players in this to allow a crash in housing prices, the fabric of society will fray quickly if price drops exceed 20%.