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Labor’s housing policies set to drive prices higher before boosting supply

Labor's election victory has put housing affordability at the centre of Australia's political agenda, with policies that experts say will initially drive prices higher before eventually increasing housing supply.

“The Albanese government’s comprehensive housing package, while aimed at improving accessibility for first home buyers, is likely to drive prices higher in the near term before supply-side measures can take effect,” Ray White Group Chief Economist Nerida Conisbee said.

The government’s signature policy removes income limits from the First Home Buyers Guarantee, allowing first home buyers to purchase with just a 5 per cent deposit without paying Lenders Mortgage Insurance.

“For the typical Sydney property, this could mean the difference between needing a $200,000 deposit and requiring just $50,000, potentially saving years of saving time for aspiring homeowners,” Ms Conisbee said.

“Economic fundamentals suggest this policy is likely to drive price growth in the short term. 

“The Productivity Commission’s research on first home buyer incentives consistently shows that measures increasing purchasing power, without commensurate supply increases, typically lead to price escalation in targeted market segments.”

Labor’s ambitious target of building 1.2 million new homes over five years faces significant challenges in the current construction environment.

“The Housing Industry Association (HIA) calls on the newly elected Federal Government to make housing a first-order priority from day one, any delay or political grandstanding will only deepen the nation’s housing crisis,” HIA Managing Director Jocelyn Martin said.

The construction industry currently faces substantial obstacles, with building costs outpacing house price growth, over 1,200 industry insolvencies annually, and extended construction timeframes.

Labor’s victory coincides with a housing market already showing renewed momentum.

April data confirmed accelerating price growth nationwide, with house prices rising by 0.4 per cent to reach a median of $917,433.

“The paradox of Labor’s housing policy is that while it risks exacerbating affordability challenges in the short term through price inflation, it may ultimately create the conditions for improved affordability in the longer term,” Ms Conisbee said.

“Higher property prices, while challenging for new entrants, makes it possible for developers to overcome construction barriers and bring new supply to market. 

“As values rise, previously marginal development projects become viable.”

The fundamental economic equation driving housing supply recovery means that house prices need to rise sufficiently to match or exceed construction costs.

“The combination of Labor’s demand-focused policies, already-building market momentum, anticipated interest rate cuts, and global economic uncertainty points to one clear outcome: accelerating property price growth through 2025 and potentially beyond,” Ms Conisbee said.

Ms Martin said that housing Australians must not become a casualty of politics as usual. 

“We can’t afford more years of delay and stalling of key policies being implemented – we need action within weeks not years,” Ms Martin said.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.