Election Lessons – the Property Market

Is it just me, or is everyone a bit underwhelmed by the prospect of May 21^stfederal election? Where are the brave, ground breaking, socially challenging, progressive policies?

Last time we went to the polls, Labor brought over 200 divergent policies to the electorate, most notably proposed changes to negative gearing and Capital Gains Tax laws that would have had substantive impacts on property markets across Australia.

This time, after their surprise loss in the 2019 election, Labor has ditched this, along with a raft of other policies in favour of “not being the government”.

It is the first time since 2013 that both major parties have guaranteed support for retaining negative gearing. Some may recall that in 1985, the Hawke government ditched negative gearing. It was back again in 1987 off the back of rent increases in the major cities. Sydney rents rose a remarkable 57.2 percent, Perth rents shot up 38.2 percent and rents in Brisbane rose 32 percent during the 18-month period.

Disincentivising investors to buy residential homes always leads to investors looking elsewhere; the share market, superannuation, commercial property, overseas and businesses. The result is supply constraint in the residential property sector which causes rents to rise through competition from the demand side.

In 2019, the Real Estate Institute of Australia (REIA) ran a campaign that reached 10.5 million voters to highlight the risks of ditching negative gearing. This time around, vacancy rates across Australia are about 1 percent, well below the market equilibrium of 3 percent, meaning supply of rental stock is already constrained.

Changes to tax laws at this stage in the market cycle would have seriously damaged rental affordability. REIA’s latest Housing Affordability Report shows the proportion of family income needed to meet rent payments is at 23 percent, up a smidge from 22.7 percent a year earlier. Perth remains the most affordable place to rent in Australia with families paying 19.8 percent of wages for rent. Spare a thought for Tasmanians who are paying 30.1 percent of their income on rent.

27 percent of all housing stock in Australia is privately owned rental homes. 70 percent is owned or being paid off and 3 percent is social housing delivered by mostly state governments.

Protecting and encouraging more investment in the 27 percent grouping is critically important if we want to provide more affordable rental homes in Australia. Labor’s decision to ditch changes to negative gearing laws is a step in that direction.

Now we need state governments to desist in making changes to state tenancy laws that further dilutes the rights of property owners in favour of tenants. There must be a practical balance between the rights and obligations of tenants and landlords if we are to increase rental housing stock in Australia and keep rents affordable.