For a relatively short election campaign, it feels like we have been bombarded by electioneering for months. Certainly, far more than the mere six weeks Scott Morrison has allotted from his Sunday visit to the Governor General at Yarralumla to May 21, the day we will go to the polls.
In contrast to the last election, when Bill Shorten presented a Pandora’s Box of property reforms that Australians chose not to open, neither Morrison nor Labor Leader Anthony Albanese has much to say on the subject of housing.
While they might pay lip service to issues of affordability, the real power on this vexed issue lies with the states and the Reserve Bank of Australia (RBA).
Tampering with negative gearing and capital gains tax is firmly off the agenda for both parties, though who’s to say what could eventuate post-election. John Howard pledged in 1995 to “never, ever” introduce GST and went on to win the 1996 election.
Mid-term he changed tack and went to the 1998 election proposing a GST to replace all sales taxes. We know of course that the coalition won that election, claiming a mandate to introduce the GST, but with a vote of 49.02 per cent against Labor’s 50.98 per cent. It was hardly a resounding endorsement.
The point is, once you are in government, there is plenty of wriggle room to change stance and present an entirely different agenda. Though woe betide any government who tried to make such fundamental changes to property taxes without first taking it to the people.
Last month’s Budget showed how little direct sway Federal Government has on the ups and downs and roundabouts in Australia’s property sector, unless they’re fiddling with the aforementioned taxes.
Release of the Falinski Report into housing affordability and supply that preceded the Budget had nothing to say that was not already known and discussed ad nauseum for decades, except to suggest that superannuation accounts could provide security for housing. Best to let that idea, nine months in the making, gather dust along with a stack of other reports into housing affordability.
In many respects, the Budget set out the government’s election manifesto and we saw a few billion thrown at addressing homelessness and supporting community housing providers. Governments should be taking action to support our most vulnerable but the vast majority of Australians don’t want to be in need of social and affordable housing.
They want to work hard, raise a deposit, pay it off, bring up their children and retire mortgage free with a secure roof over their head. But you’ve got to crack the market first and that’s a seemingly intractable problem.
The government’s expansion of the Home Loan Deposit Scheme is a good move but like every government intervention it tends to push up the demand side of the property equation which feeds into the pricing spiral.
Reserve Bank Governor Philip Lowe is the man who holds the key to the Australian dream of home ownership. Since progressively dropping the cash rate to 0.1 per cent, to protect the economy from pandemic fallout, property prices have headed upward at a dangerous trajectory. Cheap money can make millionaires and paupers in equal measure.
Lowe has only a blunt instrument to wield in steering the economy and has repeatedly urged others to do more of the heavy lifting. He vowed that interest rates would not rise until there had been movement in wages. Despite worker shortages, wage rises thus far have been only moderate, particularly when compared to the rising cost of living. Those inflation numbers are making it harder and harder for Lowe to sit on his hands.
The market is already beginning to move in expectation of a rate rise and we can expect 2 May to be even more highly anticipated than other first Tuesdays, although it is highly unlike the RBA would make such a move in the midst of an election campaign.
The other set of numbers we should be looking at closely are the migration levels. Since international borders began reopening late last year, there has been a steady stream of international students and skilled migrants enter Australia.
The Budget increased the numbers permitted in its skill stream to 109,900, plus a further 50,000 places for family reunion, a step towards rebuilding population levels that took a hit with closed borders.
Migration can benefit the economy, especially at a time when we are facing stark skills and labour shortages. But it also fuels demand for housing.
It is migration that will put a cushion under a slowing housing market but also migration that will intensify the current housing pain. Around a third of Australian households rent and while many enjoyed government assistance and discounted rents during the pandemic, the return to more normal work patterns has shifted the power back to the landlord.
Vacancy levels are close to zero and even negative in some parts of regional Australia where rents have increased up to 20 per cent and more. Capital city rentals have increased by a slightly more moderate level but still well beyond average annual wage increases of 2.3 per cent.
One-third of Australian households, about three million, own a house with a mortgage and a further 2.6 million own their home outright. Close to one-third, 2.6 million, rent the roof over their head.
For politicians, that’s a reminder that around eight million households have their wealth, hopes and dreams tied to real estate. And while the power may not lie in the hands of Morrison or Albanese, perception is what matters when it comes to casting a vote.
