Impact on the property market following Labor's election win
Anthony Albanese was sworn in today as Australia’s 31st Prime Minister. Elections are always a sensitive topic which we try not to talk about at Wealthi. The reason is that most of the time, people will form a political view and have strong emotions around a result which may or may not go their way.
Our point in this note isn’t to make a political statement, we have a diverse range of political views in our team. But we are all respecful and open, so the intention here is to provide a balanced initial impression on how Labor’s win will impact the Australian residential property market.
Both sides of politics offered first home buyer incentives during the campaign. The Coalition’s policy was probably more aggressive because it was uncapped and allowed for super to be matched with debt to buy property. Labor hasn’t come into government with nothing. In fact it’s own equity sharing approach is probably just as aggressive given where first home buyer policies have been in recent years.
So the new government will continue to stimulate the property market in the short term. Most of this will be focused on the sub $1m market, the intention to assist first home buyers with getting into the market. It’s unclear how Labor’s equity ownership policy will work, so there might be some changes or bargaining before it is officially implemented. But its coming, it will be helpful and it will insulate the market nevertheless.
The big problem in the housing market isn’t necessarily government, it is confidence. Interest rates are rising, the cost of everything is skyrocketing and there is a sense of concern out there that the Labor party needs to prove its ability to juggle these elements. That’s the greatest short term risk to the residential real estate market. Labor will need to prove that it can manage things. That might take 3-4 months, people are always nervous when there is a new government.
The country voted for a change, so there is a general acceptance for a transition. Its not a complete shock. So our overall feel is that there is nothing yet in the market to concern us regarding the property market. If anything, there is an aggressive equity share policy on the table that could support the lower end when it comes in.
In the medium term we will be watching to see if Labor is tempted to re-introduce policies to reduce tax breaks for property investors. The most obvious is a reduction in negative gearing incentives. They have proposed nothing during the campaign. But they have had an internal desire to balance out the property market and wealth gap for some time. If designed correctly and implemented carefully, this isn’t necessarily a bad thing.
But again, we’re probably getting ahead of ourselves here and thinking too far into the future. We will deal with that if it happens. For the time being, sentiment is everything. People have voted for a change, they want the cost of living to be addressed. Labor will need to ensure a smooth transition and provide as much confidence as possible to the electorate.
The key risks are to global growth, the United States economy is slowing quicker than expected and interest rates are the big unknown. Uncertainty creates opportunity in real estate, so if we do get a slowdown because of uncertainty in the next few months, it will be a great time to continue adding residential real estate to your portfolio. When we buy real estate we think about the next 5, 10 and 20 years, not the next few weeks and months.
We are confident that Australia is one of the most desireable investment destinations in the world and political change is a normal part of a healthy, functioning democracy. We wish all our elected officials all the best in this current term of parliament.
Happy investing,
