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Australian housing affordability becoming key election battlefront

Xinhua, May 10, 2016 Adjust font size:

Australia's policies toward housing affordability are becoming a touchy battlefront between the two major political parties as the national election campaign begins to take shape.

Australian treasurer Scott Morrison on Tuesday was forced to respond to an internal Reserve Bank of Australia (RBA) memo which stipulated any change that discouraged negative gearing was positive for financial stability, seemingly at odds with government policy.

Negative gearing allows property investors who make a loss to reduce their tax liabilities on other income.

However the memo, drafted in December 2014 and released under Australia's Freedom of Information laws, said when coupled with the 50 percent discount on capital gains tax rules, property is affected more as it "can be purchased using higher leverage than shares," risking investors chasing for capital gains and inflating the housing market.

"Frankly, it's out of date," Morrison told Australia's national broadcaster on Tuesday.

At the time, the RBA was concerned of an overheating property market caused largely by investors. The RBA and prudential regulators instead implemented a series of regulatory measures to curb lending to investors, curbing risks.

Housing affordability is a politically sensitive subject in the general Australian electorate that's heading to the polls on July 2.

Countless media reports suggest "ordinary" Australians and first homeowners are being priced out of the market by investors and foreign buyers.

The average house price in Sydney has topped 1 million Australian dollars, up 6.6 percent (year-to-date), while house prices in Adelaide and Melbourne have risen 4.6 and 4.3 percent respectively, according to CoreLogic RP data.

The opposition Labor party has said if they win the election on July 2, they will limit negative gearing to new homes, and scrap the 50 percent discount on capital gains tax.

However, the Liberal party has hit back, saying scrapping the current policy risks devaluing the housing market as negatively geared investors try to sell.

Morrison also said Labor's "reckless" policy risks Australia's coveted AAA credit rating after Moody's warned a negative shock to the housing market could derail the economy. Endit