Australia's poorest have taken to negative gearing

Peter Parks/AFP/Getty Images

A combination of record low interest rates and increasingly unaffordable housing in the eastern states have pushed low income families to take a chance on property investment.

Some of Australia’s poorest are taking on negatively geared properties despite their fragile finances, according to analysis by KPMG.

And it is these people who will feel the crunch the most when interest rates start rising again.

About one-third of Australian home loan borrowers have little or no repayment buffer on their mortgages despite record low interest rates, according to the Reserve Bank of Australia (RBA).

The KPMG analysis shows the bottom 20% of households by income recorded the highest rate of growth in investment income, at 8.5% a year compared to an average of 2.3% over the past decade for others.

This increase reflects a greater exposure to investments such as negatively geared property.

“While it is perhaps understandable that the poorest members of our society want to diversify and increase their incomes, this group is the least able to take on the financial risk,” says Brendan Rynne, KPMG Australia chief economist.

“It should be a matter of concern that households across the financial spectrum have been progressively increasing their debt levels at rates faster than their disposable incomes have grown.

“Any increase in our historically low interest rates would cause serious problems given the growth of outstanding residential loans over the past decade.”

Rynne says this could come from increases in wholesale funding overseas rather than via a RBA-led interest rate rise.

“But it is clear from our analysis that if the bubble does burst it will not just be the better-off who will be directly affected, the poor will be too,” he says.

The KPMG Economics report, “Financial Stress in Australian Households: the haves, the have-nots, the taxed-nots and the have-nothings”, analyses the incomes and spending of Australian households over the past 20 years.

The proportion of households facing economic hardship has remained static in recent years but the total number of the very poor has risen with population growth to reach almost half a million people.

“It is also alarming that those in the ‘have-nothing’ category — experiencing entrenched disadvantage, unable to afford heating or regular meals and requiring assistance from welfare groups — now number nearly half a million Australians,” says Rynne.

This group has grown in number by around 90,000 to 460,000 since the turn of the century and consistently represents between 3% to 5% of the population.

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