Mortgages for property investment grew by 9.1 per cent in the 12 months to August while owner-occupied loans grew by 4.9 per cent.
The figures add weight to the RBA’s growing concern over investor lending in an environment of record-low rates.
Speculation over whether the central bank will introduce macroprudential tools to rein in lending have sparked industry figures and economists to voice their opinions on investor lending and negative gearing.
David Bryant, chief executive of Australian Unity Investments, said that action is long overdue to address the current distortion in the system regarding investment housing and negative gearing.
Mr Bryant believes this is needed to address the concerns raised by the Reserve Bank in relation to Australia’s elevated housing market.
“It is time to look at adjusting concessions on negative gearing as a means to address the RBA’s concerns with the housing market, rather than resorting to blunt instruments such as capital controls,” he said.
Mr Bryant said the RBA has three potential ways of fixing the current problem, some of which will require treasury and government support.
“The first option, and to me one that is long overdue, is to look at adjusting existing distortions, the obvious one being negative gearing,” he said.
“This is a far better course than introducing new distortions.”
Secondly, the RBA could implement capital or lending controls through the use of macroprudential tools, which are untested in Australia.
RBA governor Glenn Stevens has warmed to this idea in recent weeks.
In a speech to the Melbourne Economic Forum on September 25, Mr Stevens said he saw “little downside” of introducing tools other than changes to the official cash rate to curb the rapid growth for investor finance, particularly in Sydney and Melbourne.
Raising interest rates is the third option, Mr Bryant said.
“However the Reserve Bank is likely to want to see several rate increases come through in the US and UK before it makes any move locally, and central banks in these countries have indicated these are not likely to commence until March next year,” he said.
“Realistically, it’s going to be 12 months before the RBA can use interest rates as a tool to manage house prices.”
Statistics show that negative gearing is heavily used by investors and is likely having a significant impact on demand, Mr Bryant said.
Over 1.8 million Australians own investment properties, two-thirds of who record a loss against their rental income each year, he said.
“With 45 percent of home loans now going to investors – which is two and a half times the level of the early 1990s – that number is only going to increase.”
What is of more concern, he said, is that loans for investors used to be evenly split between existing houses and new construction, whereas now more than 90 percent is for existing homes.
“The economic benefit which negative gearing provided through construction has now largely fallen away,” Mr Bryant said.
“So given these changes, the question is whether negative gearing only makes sense for new construction.”
Mr Bryant argues that removing some negative gearing benefits will not only help settle the housing market, but may encourage investors to diversify into other asset classes and build more balanced portfolios.