(The Canberra Times)
Australians are borrowing heavily to invest in existing property rather than in new dwellings that help to boost the housing supply, new Reserve Bank of Australia data shows.
As debate rages over the best response to the recent house price surge, Reserve Bank data released on Tuesday showed lending by banks and other institutions for housing grew by 6.7 per cent over the past 12 months, outstripping growth in lending to businesses (3.2 per cent) and personal finance (1.1 per cent).
There was no growth in credit to businesses in August, while lending for housing rose 0.6 per cent, prompting some economists to warn that Australian growth had an unhealthy housing investment bias.
Saul Eslake, chief economist at Bank of America Merrill Lynch, urged the federal government to end negative gearing for new investors in a bid to stop house prices in Sydney and Melbourne soaring beyond the reach of a generation of potential home owners.
Mr Eslake said on Tuesday that negative gearing – which allows investors to reduce their annual tax liability by deducting losses made on rental properties from their other income – ought to be stopped for new investors because it was contributing to the inflation of property prices and Australians could soon find themselves in a “bubble situation”.
His call follows warnings from the Reserve Bank this month that macro-prudential policies may be needed to keep a lid on the country’s soaring house prices.
AMP chief executive Craig Meller backed macro-prudential measures by the Reserve Bank to stem the sharp rise in housing prices although he noted they would not address the fundamental driver of residential property prices which is the lack of supply of new housing stock.
Speaking after a breakfast in Sydney before the release by the Reserve Bank of credit data on Tuesday morning, Mr Meller said continuing low interest rates were required to stimulate economic growth, but these settings were driving investment in property which needed to be quelled.
“The challenge we’ve got as a country is we need low interest rates to stimulate growth in the country, and one of the side impacts of low interest rates is more and more money being invested in property, rather than stimulating broader growth in the economy,” Mr Meller said after a breakfast speech to the Committee for Economic Development of Australia.
“Finding ways to moderate the investment in property whilst still keeping interest rates low to generate momentum elsewhere in the economy looks like good policy.”
He would not be drawn on what sort of macro-prudential tools might be suitable, saying this detail was a matter for the Reserve and Australian Prudential Regulation Authority.
After a rise in Sydney and Melbourne house prices, the Reserve Bank said last week it was working with APRA on “further steps” to reinforce safe lending by banks for housing, but did not specify what steps would be taken.
Mr Meller said that the debate about macro-prudential policy – which is focused on curbing bank lending to housing – failed to address the more important driver of housing prices, which is the failure of new housing stock to keep up with growth in population.
“It always surprises me that whenever there is debate about the property market, everyone jumps to demand side controls or stimulation, rather than looking at the fundamental issue in the residential property market in Australia, which is addressing the supply side. How do we actually get more homes being built?
“This is a growing country and growing nation. We increase the population by 1 to 2 per cent per year and we never get the housing market keeping up with it.
“That is the big challenge for the country – it is not the demand side but the supply side that needs addressing.”
His argument was supported by John Daley, chief executive of the Grattan Institute, who told Fairfax Media on Tuesday that woeful planning policies in Melbourne and Sydney were restricting supply and having a greater effect on dwelling prices than negative gearing or foreign investment.
“The essential problem is that land prices are very high, and land high prices are very high because land is a scarce resource, and we’re making it much more scarce by making it very difficult to subdivide it,” Mr Daley said.
Last week chief executive of ANZ Banking Group in New Zealand David Hisco also said that macro-prudential policy did nothing to deal with the problem of a lack of supply of new dwellings.
Mr Meller’s comments followed a speech to CEDA which addressed retirement income policy and called for decisive action by government to preserve the prosperity of growing numbers of retirees.
Mr Meller criticised the government’s deal with Clive Palmer earlier this month to freeze the super guarantee at the present rate of 9.5 per cent for seven years, saying it needed to be set at 12 per cent to ensure retirees had sufficient income for their retirements.
“The simple reality is that saving just 9.5 per cent of your earnings is not enough,” he said.
with Karen Maley