The use of regulatory levers by the Reserve Bank would help ease overheated parts of the housing market, but limiting negative gearing tax breaks for investors would pose serious risks to the stock of rental properties available, according to Mirvac Group chief executive Susan Lloyd-Hurwitz.
Tightening Foreign Investment Review Board regulation of offshore buyers and an additional stamp duty levied on foreign investors would slow superheated parts of the market, Ms Lloyd-Hurwitz told The Australian.
“(But) as a society, we would have to think long and hard about the removal of negative gearing because it has very far-reaching implications.”
The RBA warned again this week on the risks, as investors stoke housing prices, and continued to flag that it would join with financial regulators to take “modest” action.
Meanwhile some analysts and commentators have called for a rethink on negative gearing to tackle housing affordability as price growth in Sydney hit 15 per cent in the year to September.
“We need rental stock and it’s currently owned by mum-and-dad investors, negatively geared,’’ Ms Lloyd-Hurwitz said, noting that, unlike the US, Australian institutions and listed companies did not invest in housing.
“Where does the housing stock come from for the rental market?” she questioned, if small investors retreated from the sector.
Foreign developers, who have forged into the Sydney, Melbourne and Brisbane markets, were selling their new projects offshore and a proportion may not be rented locally.
“It’s hard to visualise how that plays out. I don’t think they permanently replace the mum-and-dad investors who negatively gear their investment flat,” she said.
Ms Lloyd-Hurwitz, head of one of the country’s biggest residential developers, said years of chronic under-building in Sydney and to a lesser extent Melbourne would underpin the cities’ housing prices for another two years. But the days of soaring price growth in the two capitals were numbered. “We believe that is unsustainable,” Ms Lloyd-Hurwitz said. “We would expect house prices to increase in the mid- to single-digits for the next couple of years.”
Buyers were much more sensitive to rising interest rates and the velocity of the rise rather than to the absolute level of rates, she said.
Ms Lloyd-Hurwitz characterised the economy as in a “very shallow rate of recovery”, saying that this would keep interest rates lower for longer and put a floor under housing prices. “We are really trying to take advantage of the market conditions and get stock into the market,” she said.
Mirvac will release 2700 housing lots in the 2015 financial year, substantially more than in previous years, she said.
Developers had rushed into certain parts of the market. Inner city investor units in Melbourne were already in oversupply, she said. “Think the back of Southbank, no car park, one bedroom or studio-type apartments. We don’t operate there,” she said.
This article first appeared in The Australian Business Review.