Property is one of the least understood assets classes due to problems in measuring associated risks and performance. The current debate around tax concessions and housing has failed to address one key driver -- loan structures, for example offset accounts. These mortgage structures, in particular 100 per cent offset accounts, enable investors to preserve their maximum negative gearing benefit into the future.
Offset accounts assist in the maintenance of the 'purpose test' for geared investments and ensure interest tax deductibility is not affected as people redraw on any equity they build up and want to use later for even personal reasons. The failure to require traceability between individual loans and the investment asset has meant some are able to take advantage of negative gearing on an entirely new level and rather than pay down their loans, increase their limits.
There are many examples of countries with significant tax concessions on owner-occupied properties and no talk of house price bubbles or affordability, or why their citizens pay down their loans while Aussies don't anymore.
Housing is a major lever of wealth generation, and tax incentives should exist if people undertake investments with the proviso to pay off the debt. Not doing so means our banks are left holding the risk and exposing Australians to greater systemic risk