How do the major parties housing policies stack up? || Insiders On Background

Key Concepts

Housing affordability, supply vs. demand, first home buyer schemes, infrastructure funding, demand-side policies, supply-side policies, negative gearing, capital gains tax, serviceability buffer, loan to valuation ratio (LVR), lender's mortgage insurance (LMI), dwelling value to income ratio, skilled migration.

Housing Affordability Crisis: Causes and Context

• Main Issue: Housing values have risen significantly faster than incomes over the past 5-20 years, making it difficult for first home buyers to enter the market. Housing values have risen a little bit more than 30% nationally and the wage price index is up about 15%.
• Underlying Problem: A lack of housing supply relative to demand is the primary driver of rising prices. Economics 101 when supply is very low and demand is high you have a lot of upwards pressure on prices.
• Political Focus: Both major parties are focusing on policies to help first home buyers, but these policies often fail to address the underlying supply issues.

Supply-Side Measures Proposed by Political Parties

• Coalition: $5 billion fund to fast-track "last mile" infrastructure required for new home construction, primarily focused on greenfield sites (urban fringes).
  • Benefit: More immediacy to it. Speaking to the industry profitability in the construction sector is really compressed.
  • Limitation: Limited to green field sites are we talking more about the urban fringes being developed rather than infill higher density building in in the cities.
• Labor: $10 billion Housing Australia Future Fund to build 100,000 new homes for first home buyers, with direct government involvement in financing private dwellings.
  • Benefit: Good policies.
  • Limitation: Slower burn. Getting a home into the marketplace is at least a 12 month build period for for a detached home a lot longer for for multiens entity styles of dwellings.
• General Assessment: Both policies are positive, but the Coalition's infrastructure fund may have a more immediate impact. Both parties are doing something on supply but they're both doing something on demand as well that's going to pump up demand.

Demand-Side Measures Proposed by Political Parties

• Labor: Expanding the 5% deposit scheme to all first home buyers, with the government guaranteeing the remaining 15%.
  • Risk: Likely to push prices up by at least 5% due to increased demand.
  • Concerns: Flies in the face of responsible lending (95% LVR), shifts risk to the government, and potentially disrupts the private sector lender's mortgage insurance (LMI) industry.
• Coalition:
  • Allowing first home buyers to access up to $50,000 from their superannuation.
  • Allowing newly built homes mortgage repayments to be deducted from your tax for five years.
  • Lowering the serviceability buffer from 3 percentage points to 2 and a half percentage points.
  • Risk: Likely to push prices up significantly, potentially more than Labor's policies.
  • Benefit: The mortgage deductibility scheme is linked to new housing so I think there's there's some good balance there.
  • Concerns: The higher your income the more you're going to benefit from these things this will this will this will particularly appeal to the higher income earners.

Negative Gearing and Capital Gains Tax

• Current Stance: Neither party is proposing changes to negative gearing or the capital gains tax discount in this election.
• Potential Impact of Changes:
  • Negative Gearing: Changes could reduce investor activity, leading to less rental stock and potentially higher rents. About 42% of landlords were claiming a cash flow loss on on their properties.
  • Capital Gains Tax: Winding those back help or hurt housing affordability in your view i think almost guaranteed it's going to be hurting housing affordability particularly for renters.
  • Counterargument: Reduced investor demand could lead to lower housing prices, making homeownership more accessible.
• Political Considerations: Lower housing prices are politically sensitive due to the large proportion of household wealth tied to housing.

The Need for Price Decline and Affordability Improvement

• Current Situation: The dwelling value to income ratio in Australia is about eight.
• Desirable Outcome: A period where housing markets move in line with incomes or even slightly less to improve affordability metrics.
• Caution: A crash in the housing market would be detrimental to the economy.

Additional Solutions and Recommendations

• Infrastructure Funding: Continued funding for infrastructure to support housing development.
• Skilled Migration: Increased skilled migration specifically for housing trades to address labor shortages and reduce construction costs.
• Training: More funding for training in the trade sector to address the skills shortage.

Conclusion

Both major parties are offering a mixed bag of housing policies, with supply-side measures aimed at increasing housing stock and demand-side measures aimed at helping first home buyers. However, the demand-side policies risk further inflating house prices. Addressing the housing affordability crisis requires a multi-faceted approach, including increased supply, skilled migration, and a potential period of stable or slightly declining housing prices relative to income growth. There's no real silver bullet to fixing this mess that we're in.