Treasurer Josh Frydenberg has strongly indicated that a crackdown on high debt home loans was imminent following discussions with the Council of Financial Regulators, including the Reserve Bank of Australia and the Australian Prudential Regulation Authority (APRA).
Following the meeting, APRA confirmed in a statement that it plans to release “an information paper on its framework for implementing macroprudential policy” in the coming months and that it would continue to consult with the Council of Financial Regulators on the potential implementation of any measures.
Across the pond in New Zealand, the government has introduced draft legislation that will limit the deductibility of mortgage costs on residential property investments.
Set to take effect from 1 October, the legislation will limit the availability of tax deductions for interest expenses on investment properties acquired on or after 27 March of this year, excluding new builds and the main family home.
“Tax is neither the cause nor the solution to the housing problem, but it does have an influence, and this is part of the government’s overall response,” said Finance Minister Grant Robertson.
“We want to curb investors’ appetite for existing residential properties but also want to stimulate investment in new housing. That’s why we’re also proposing an exemption for property development and for new builds, allowing interest deductions in full.”
Median property prices in New Zealand rose to a record $850,000 in August, up 25.5 per cent from a year earlier according to the Real Estate Institute of New Zealand.
In Australia, the median property price rose to over $666,000 in August according to CoreLogic, an increase of 18.4 per cent compared with August 2020.
However AMP Capital chief economist Shane Oliver said it was unlikely Australia would follow in New Zealand’s footsteps due to the unpopularity of changes to negative gearing as seen in the last federal election along with the difficulty of negative gearing with low interest rates.
“What’s more, investors are now only around 25 per cent of total housing loans in Australia – compared with 45 per cent in the last boom – so they are not really behind the current surge in home prices,” Mr Oliver said.
“Going forward, macro prudential controls are now looking imminent but these don’t require legislation as they will come from APRA – most likely around limiting high debt to income and loan to valuation ratio loans and possibly mandating higher interest rate serviceability buffers to slow lending,” Mr Oliver added.
The latest data from APRA indicated that debt was at least six times higher than income in 22 per cent of new home loans during the June quarter compared with 16 per cent in the previous year.
“Australia needs a more comprehensive approach to approve affordability with Canberra and the states working to boost supply, take pressure off cities and reform taxes – like replacing stamp duty with land tax and reducing the capital gains tax discount.”
