‘Large-scale’ sell-off of properties under negative gearing reform

By Georgia Brown

Changes to negative gearing policy could cause a mass sale of negatively geared properties and an increase in rental prices, according to an internal RBA memo.

The RBA recently released an internal briefing note under freedom of information laws, which said that the “potential negatives” of making negative gearing “less attractive” included a “potential increase in rents” and a “large-scale sale of negatively geared properties – though only if changes were not grandfathered”.

On the flipside, the note cautioned that the interaction between negative gearing and the capital gains tax “may encourage chasing of capital gains ... as it can be purchased using higher leverage than shares, for example”.

Furthermore, the memo said that “any change which discourages negative gearing may be good from a FS [financial stability] perspective” and noted that negative gearing can encourage “speculation” with “investors bidding up housing prices”.

Ken Morrison, CEO of the Property Council of Australia, noted that the memo was prepared in 2014 and was not official advice.

“It was input and the thinking at the time before APRA [Australian Prudential Regulatory Authority] introduced measures that the RBA more recently, and over the last six months, acknowledge have been effective in cooling elements of the housing market,” he said.

In reply to the release of the 2016 federal budget, Opposition Leader Bill Shorten last week detailed Labor’s plans to address housing affordability.

“Building a stronger budget demands an honest look at housing affordability, and tax subsidies such as negative gearing and capital gains that make the problem worse,” Mr Shorten said.

Mr Morrison said the Property Council accepts that the RBA were not modelling the federal opposition’s policy, but the memo clearly flags that changing negative gearing would impact rents.

“This memo confirms that policy makers have real concerns about how renters would fare under policies that make negative gearing less effective,” he said.

“We again call on the opposition to release its modelling on the impact of its proposed tax changes on rents and the property market.”

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