What a change of government could mean for housing markets

A change of government at the forthcoming election would be unlikely to mean a significant improvement in housing affordability over the medium and longer term this time around.

Housing affordability in focus

A change of government at the forthcoming election would be unlikely to mean a significant improvement in housing affordability over the medium and longer-term this time around.

While there are some proposals in relation to housing affordability, without a structural change to the Australian economy that will reduce the population concentration in Sydney and Melbourne – and to a lesser extent Brisbane – housing affordability is unlikely to improve materially over the medium and longer-term.

The 2019 election defeat was a shock for the federal Opposition, and this was clearly reflected in the decision to drop its previously promoted reforms to negative gearing and capital gains tax. But housing affordability is likely to remain a key tenet of the election campaign, and measures taken to cool housing demand could make a marginal difference to affordability over time.

Housing affordability is likely to remain a key tenet of the election campaign

If the Coalition is returned in government, then we can most likely expect no major changes, but Labor has made some interesting proposals with regards to affordable housing, and at a later point of time could choose to target investors which would, in turn, dampen housing demand.

The ALP has previously recommended a suite of measures, ranging from introducing a tax on vacant properties and the creation of an affordable land register. And there is the promise to establish a $10 billion Housing Australia Future Fund to build low-cost houses and affordable dwellings for frontline workers, which would deliver 20,000 social houses over the first five years.

These policies will likely make a difference to housing affordability at the margin, and in specific cases, such as for certain key workers, but generally speaking it’s the policies targeting demand which tend to have a bigger impact on affordability, rather than measures taken to build new supply.

As we’ve seen in the United Kingdom, finance cost relief for individual landlords could still be restricted, though it’s worth noting that this hasn’t stopped housing prices from rising in the UK since the implementation of the legislation in 2017. Something similar could easily be looked at by the ALP in the coming years as a way to build up a budget war chest.

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Expect the status quo if the Coalition wins

The incumbent government’s housing policies have mainly focussed on the First Home Loan Deposit Scheme to help first homebuyers into the market, and the HomeBuilder package.

Despite much scepticism from market commentators, both policies have been remarkably successful in what they set out to do. First homebuyer commitments have run as high as we’ve seen since the Rudd first homebuyer stimulus through the financial crisis, and the next Census appears fairly likely to record a surprise increase in the rate of homeownership.

 Figure 1 – First homebuyer commitments by state
Figure 1 – First homebuyer commitments by state

And the HomeBuilder stimulus was also successful in keeping the construction industry operational through the worst of the pandemic, with over 229,000 dwellings approved over the year to November 2021, which is historically speaking a very high figure – and detached house construction has surged.

Figure 2 – New dwellings under construction
Figure 2 – New dwellings under construction

Medium-term challenges for affordability

The Australian housing market faces two major challenges. The first is the overall weakness in the creation of high-paying jobs outside Sydney and Melbourne (and to a lesser extent, Brisbane). Consequently, since the end of the mining boom, population growth in those capital cities has been substantially higher than in the other parts of the country.

While the pandemic has triggered some changes and particularly increased demand for lifestyle areas, these changes are not similar in scale to the shift that we had through the mining boom years, when the ‘resources states,’ and particularly Western Australia, enjoyed very strong demand for housing.

With no large-scale innovation programs that will create hundreds of thousands of high-paying jobs in areas outside the major capital cities, a population shift on a large scale is unlikely. The demand for well-located housing in Sydney, Melbourne and Brisbane will therefore remain high.

There is a chronic undersupply of family-suitable housing in Australia

The other issue is a chronic undersupply of family-suitable housing, particularly free-standing houses in areas with good proximity to the major employment hubs. Overall, there is a known lack of integrated planning and coordination between the federal, state, and local governments to solve this puzzle.

The problem is particularly noticeable in the middle ring suburbs, resulting in the ‘missing middle’ and an insufficient supply of medium-density townhouse projects. This issue is also unlikely to be resolved in the near future. When we add to that Australia’s migration policy that will impact the demand for properties in the major employment hubs, then the issue is here to stay.”

Overall, our conclusion is that over the medium and long term it’s highly unlikely that housing affordability will materially improve if there is a change of government in the 2022 Federal Election. Homebuyers and investors will likely continue to purchase family-suitable properties in areas with good proximity to the major employment hubs.

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