Industry divided over idea of cap on investment properties for negative gearing

Limiting how much investors of multiple properties could negatively gear and a possible cap on the number of investor properties has divided the industry even as the government toys with ideas to cool the overheated property market.

The suggestion was favoured by SQM Research managing director Louis Christopher, who said a limit was a good idea “conceptually”, according to Fairfax Media.

The new debate opened up after news broke that the government is examining the possibility of putting a limit on the number of properties investors can buy or impose a dollar value limit on how much can be negatively geared by investors.

Questions around the preferred option hinge on how to find a measure that recognises large differences between property markets around the country and avoids generating new regional or price-bracket distortions, The Australian Financial Review reported, citing sources.

“For those who own 20 properties that are all negative geared, it does need to be done,” Christopher said. “But where you draw the line is political – two properties? Five?

“It’s a very small proportion of the population when you get to three properties plus, and at that point it would only have a small effect [on the market].”

A limit of one property would, however, have an impact on the overall demand from investors, he said.

The government has ruled out dumping negative gearing, and has also shown reluctance to lowering capital gains tax concessions. It has promised a housing affordability package in the May budget.

Experts say the latest idea is not a fix for affordability.

Grattan Institute chief executive John Daley told Fairfax Media that the idea was “genuinely stupid”.

In fact, one of the major problems facing those in the housing market today was not multiple property owners but so-called “mum and dad” landlords with just one investment property, Daley said.

“One of the fundamental problems with the Australian rental market is that it doesn’t have enough multiple property landlords,” he said.

Data from the Australian Taxation Office found slightly fewer landlords in the market but more investment properties per landlord overall.

But a majority of Australia’s 2 million landlords did not have a substantial portfolio – 72 per cent had one property in the 2015-16 financial year and 90 per cent had two or fewer.

Daley said those with large portfolios – such as 10 or 20 investment properties – would be more inclined to offer long-term leases and stability for tenants.

“There are very few big landlords and very few long-term tenancies.”

He said while the idea of portfolio investors helping the market was “counter-intuitive”, it did not make sense to blame housing affordability on a small number of multiple property owners.

BIS Oxford Economics senior manager residential Angie Zigomanis said a cap was not a good idea.

“If someone wants to add more properties to the rental stock, I don’t think we should be stopping them,” Zigomanis said.

Limiting deductions that could be claimed was more effective, as it would “reduce the willingness of an investor to pay top dollar for the property”, he said.

Domain Group chief economist Andrew Wilson said any moves to interfere and reduce investment activity would be a “disruption in the rental market” – whether from altering the tax mix or limiting how many properties investors could buy.

“It would cause higher rents, and we already have a tight rental market,” Dr Wilson said.