The Australian Bureau of Statistics housing figures released this week provide evidence that investor activity and current negative gearing tax arrangements keep rents lower than they would otherwise be.
The March quarter CPI figures reveal that current levels of investor activity have delivered the lowest increase in rents since 1995. In fact, since investor activity began accelerating in 2013, the rate at which rents have been increasing has slowed.
The figures also show that lending to investors has been trending down for the past nine months. This is likely the result of increased mortgage interest rates for investors and a tightening of lending criteria, since APRA cracked down on more marginal borrowers in late 2014.
These figures serve to remind us that while the debate about negative gearing devolves into debates about which income groups get the greatest share of the benefits, negative gearing has played an important role in keeping rents affordable for low income households.
If we abolish or restrict negative gearing, the potential for investors to choose other asset classes instead of property could exacerbate the already slowing trend of investor lending. This would lead to fewer rental properties and rising rents.