Congratulations to Prime Minister Anthony Albanese and the Labor Party on their landslide election win.
As someone who works in the property industry, it was great to see plenty of attention during the campaign on housing and the various big-spending plans put forward by Labor, the Coalition and even The Greens to boost supply, particularly for first-home buyers.
However, the re-election of the Albanese government should not alarm property investors, as Labor has ruled out changes to tax incentives like negative gearing and the capital gains tax discount.
The impact of Labor’s big, expensive suite of housing measures could also take a decade or more to substantially increase supply, with home prices unlikely to fall in the short to medium term and a housing shortfall continuing.
In fact, one leading property analyst argues that for Labor’s housing plans to work, property prices will actually need to rise.
First-home buyers
“100,000 new homes reserved just for first-home buyers.
“No investors, no bidding wars, just a chance to get your foot in the door.
“And you'll only need a 5% deposit to make it happen.”
At face value, the Facebook election campaign ads featuring Prime Minister Anthony Albanese made Labor’s signature housing policy - a $10 billion election promise for first-home buyers - sound like an incredible opportunity for young Australians.
A chance to own your own home, with a small deposit.
However, a close look at the reality is quite different.
Let’s look at some of the numbers the Prime Minister and his Housing Minister, Clare O’Neil, used when unveiling the scheme during the election campaign.
“This means a Sydneysider and first-home buyer can purchase a $1 million apartment with a $50,000 deposit with their loan guaranteed by the Albanese Government.”
“It means a Queenslander and first-home buyer can purchase an $850,000 home with a $42,500 deposit,” the pair declared.
So, in these two examples, the Federal government would guarantee $150,000 and $127,500 of the purchase price to avoid the need for expensive Lenders Mortgage Insurance for people taking out a home loan who aren’t able to put up a standard 20% deposit.
The keyword here is “guaranteed”, not “give”.
So, how much would a first-home buyer in Sydney or Brisbane who takes Anthony Albanese up on this offer have to pay each month to service a $950,000 or an $807,500 home loan?
Wait for it - it’s around $6,030 a month if you are in Sydney or $5,126 if you live in Queensland.
To get the bank to lend you that much money and for them to be confident you could service a loan of that size, a young single first-home buyer would have to be on a salary of around $250,000 a year, or a couple would have to be pulling in upwards of $275k.
It’s no wonder the government only expects an additional 30,000 people to qualify for this scheme each year.
As for the 100,000 homes guaranteed for first-home buyers?
Originally, it was planned that these would be rolled out over a period of 8 years.
However, when he was pressed on the time frame for these homes in an interview in the last week of the election campaign on ABC TV’s 7:30 program with Sarah Ferguson, the Prime Minister kept ducking the question:
Sarah Ferguson: So, when will these homes be built?
Anthony Albanese: Well, we want to get it going. We want to get the legislation going.
Sarah Ferguson: So what's the number? How many of the homes will be built by the end of the decade?
Anthony Albanese: We want to get the legislation passed.
And on it went.
So Sarah Ferguson finally tried a different tack.
Sarah Ferguson: This feels so far in the future. Why should first-home buyers feel optimistic about this policy?
Anthony Albanese: Because what they should do is have a look and you could, you could put up some footage on 7:30 of the places that are under construction right next to the railway station there in Adelaide, right now, under exactly this sort of program that will deliver.
So, what are these homes in Adelaide?
It turns out Mr Albanese was talking about a project in Adelaide’s north he had visited during the election campaign called “Prospect Corner”, where 12 townhouses in a development of 27 being built next to a railway station are reserved for first-home buyers.
This is actually a South Australian state government initiative, not a Federal government program, hence his wording about “this sort of program”.
The point here is that none of these 100,000 homes reserved for first-home buyers currently exist, and just days after promising they’d all be built in 8 years, the Prime Minister was already walking back the prospect of having any of these homes ready to go any time in the foreseeable future.
Lower prices?
In that same 7:30 interview, the Prime Minister was asked about the impact the 5% deposit scheme would have on home prices.
Wouldn’t all those buyers with a lot more cash to spend simply bid up prices?
As independent economist Saul Eslake puts it, these sorts of first-home buyer policies “enhance the capacity of those who are able to take advantage of these schemes to borrow more than they otherwise would, so that they can spend more on housing than they otherwise would be able to do."
“No, we’re increasing supply,” insisted Anthony Albanese when this argument was put to him.
So doesn’t that cause another issue?
Won’t home prices fall?
Sarah Ferguson: Increasing supply under most circumstances leads prices to fall. You're not looking for house prices to fall?
Anthony Albanese: What I'm looking for is for people to have access to good quality housing, to have the security in life that comes from a secure roof over your head.
As independent economist Saul Eslake points out, the reality is that first-home buyers are a much smaller voting group than Australians who already own property, either outright or with a mortgage.
ABS lending data shows there are around 110,000 people who succeed in becoming first-home buyers each year.
"Even if you allow that, for everyone who does (get into the market), there are five or six who don't, that is at most 750,000 votes for policies that would restrain the rate at which house prices keep going up," Mr Eslake told the ABC.
"So, on the one hand, 750,000 votes for policies that might restrain the rate of house price inflation, but somewhere north of 12 million (voters) for policies that would keep the rate of house price inflation going up.
"Even the dumbest of our politicians can, as the Americans say, ‘do that math’. And they do it at every election."
That’s exactly why Anthony Albanese wouldn’t answer the questions about home prices falling, and why both Labor and Coalition governments will never intervene in the market enough to boost housing supply so it gets to the point where it will make house prices fall.
As former Prime Minister John Howard famously said in 2003, “I haven't found anybody in seven and a half years shake their fist at me and say ‘Howard, I'm angry with you for letting the value of my house increase.’”
In fact, Ray White’s Chief Economist, Nerida Conisbee, says Labor’s housing policy is a “paradox” because it will need prices to rise in the short to medium term to actually work.
“Higher property prices, while challenging for new entrants, makes it possible for developers to overcome construction barriers and bring new supply to market,” she says.
“As values rise, previously marginal development projects become viable, and the industry gains additional capital to expand capacity.”
However, this process is likely to take years, and to get that “expanded capacity”, you need more builders.
Currently, there’s a huge shortage of construction workers in Australia.
Negative gearing
When 7:30’s Sarah Ferguson asked the Prime Minister about the possibility of changing negative gearing, Anthony Albanese was clear that Labor would not be resurrecting the policies curbing the investment tax break it took to the 2019 election, which then leader Bill Shorten lost.
Anthony Albanese: We took a policy to an election in 2019. The Australian people had their say on that in 2019. What we're concerned about is supply. And if you simply do a measure of changing negative gearing, there are two problems with it. One is the issue of supply. And immediately, what you could find is an increase in rents for people who are renters. But the other thing that you'll do as well, and something I've been absolutely determined to do. I have two mantras. No one held back, no one left behind. No one left behind is about looking after the vulnerable. No one held back is about aspiration. And I've been very clear that the Labor Party is the party of aspiration.
David Crowe, the Chief Political correspondent for The Age and Sydney Morning Herald newspapers, believes the Prime Minister won’t change his mind on negative gearing, even after his thumping election win and securing a big parliamentary majority.
“They know the lessons from the last term and the lessons that led to this success, which is ‘no surprises, play it safe, don't do something you didn't warn voters about in the first place’..... They're not going to do something they didn't warn voters about.”
The take-out
Forget the scare campaigns you may have heard during the election campaign or the seemingly large sums promised to create more housing supply.
Property investors need to keep several things in mind: