Under a freedom of information request, the RBA has just released some material which casts light on their perspective on investment property and negative gearing from the Financial System Inquiry.
There are a few interesting points.
- Whilst tax reform is an issue for Government, the RBA has noted that concessional rates of taxation of capital gains might encourage leverage speculation, especially in combination with negative gearing provisions.
- Risks have been building in investor housing (no coincidence, this is happening at a time when some other asset classes have seen modest/volatile returns).
- Negative gearing and capital gains concessions could together encourage “leveraged and speculative investment in housing” – including bidding up house prices, risks to financial stability if prices were to fall, and a rise in interest only loans (which do not repay capital so do not build an equity buffer).
- If changes were made to these policies, it might increase rents, and if the arrangements were not grandfathered, could lead to the large-scale sale of negatively geared properties.
Note: Labor’s proposals, of course include grandfathering.
