With the Federal election officially called for 18 May, the outcome of the election has quickly become a major talking point throughout the property and development industry – especially as we think about what each potential outcome may mean for the industry over the next few years. Amid fallout from the banking royal commission, tighter APRA regulations and the cooling national housing market, the looming federal election is being held in a time of uncertainty within
the property market. So, what can developers expect from a Labor or Liberal victory, and what implications might a hung parliament have?
A Liberal Party Victory
Having been the former Treasurer and member of the Property Council of Australia, current Prime Minister Scott Morrison understands better than most the implications that governmental changes in the property and development industry can have for buyers, sellers and investors in the housing market.
Morrison’s government is in fierce support of APRA macroprudential controls that have regulated the Australian property industry over the past five years. The Prime Minister has backed APRA’s three main tools that have deflated the nation’s hot housing market, including a 10 per cent cap on investor lending growth in 2014, a 30 per cent limit on interest-only loans in 2017, and ongoing closer inspection of borrower income and expenses.
Historically, Liberal policies on housing affordability have centred around increasing supply and planning reform.
The Liberal Party have introduced measures such as allowing first home buyers to contribute more of their super to purchasing property and charging foreign investors extra for unoccupied properties.
If Liberal claims victory in the federal election, Australian home buyers can build a deposit within their superannuation, aided by yearly voluntary contributions of up to $15,000. Stamp duty will also be halved on home purchases up to $400,000 for first-time buyers.
Australians over 65 who want to downsize and sell their homes will receive a non-concessional contribution of up to $300,000 to their superannuation funds from the proceeds of the sale of their principal home.
For investors, negative gearing will continue but deductions for travel expenses relating to property investment will be disallowed, and foreign investors will face an annual charge of $5,000 if their property isn’t occupied within the first six months of ownership. Housing conditions will likely stabilize in light of these incentives for investors.
From now until July 2024, the Coalition intends to increase the threshold of the 32.5 per cent tax bracket, offering taxpayers substantial tax cuts.However, Morrison is currently facing a federal election with the economy at its weakest and signs that consumers have already reacted to Australia’s folding housing market.
The Guardian’s opinion poll shows that Labor currently remains ahead of the Morrison government on the two-party preferred measure 52 per cent to 48 per cent as at March 26.
A Labor Party Victory
The Labor Party plans to roll back two stages of the Coalition’s tax cuts, which favour higher income earners. The party also has plans to end negative gearing for future investment properties (excluding newly built homes), which has been met with trepidation from the housing industry that warns the policy could lower property prices and increase rents.
If successful, the opposition also intends to halve the capital gains tax discount for assets purchased from January 1, 2020, meaning investors have just over six months to get ahead of the new curbs.
For sellers, Labor reforms of capital gains tax will not affect existing investments, nor investments made by super funds. Instead, the policy will allow existing investment properties to be ‘grandfathered’, whereby taxpayers can continue to claim their deductions but not gain negative gearing benefits from future purchases of existing houses.
Despite Prime Minister Scott Morrison labeling these policies as ‘growth destroying’, Labor’s reforms could potentially benefit the wider economy by minimizing the flow of capital into an unproductive sector. The impact on house prices might also be lesser due to already low investor participation in the housing market.
The Commonwealth Treasury recently declined to back the Coalition’s argument that removing negative gearing tax concessions would lower house prices, instead saying the cuts were unlikely to have much impact in the long term.
Labor’s policies, particularly around housing affordability, are designed to remove tax concessions, which the party believes are favouring investors and preventing owner-occupiers and buyers from entering the market.
Labor’s planned restructure of the tax system could create economic uncertainty, but its inherent policies could also support the creation of a fresh housing supply and as a result, more opportunities for developers.
A hung parliament
In the event of a hung parliament, where neither party has majority vote, independent members or members of a minor party hold the power to decide which party will form government.
Following its loss of the seat of Wentworth in a by-election, the Coalition has already lost its majority in the lower house. The crossbenchers, a diverse mix of independents and members of the Greens, Centre Alliance and Katter’s Australian Party will ultimately decide the outcome. Given the crossbench’s conflicting interests, it’s unclear how their decision might affect the election policies the property market faces.
What is clear is that buyers, sellers and investors in the market have already reacted to proposed changes and this will continue up until the election. Both party’s strategies are not without political and economic risks and the election could inevitably see big changes as investors rush out to make purchases before potential reforms.
Over the next 5 or so weeks, as all major parties transition well and truly into campaign-mode leading up to May 18, we will no doubt begin to hear more insights into their specific approaches to the housing market and the property industry in general.
But, no matter what the result of the election is, the industry could be rocked by policy changes that may come into effect as early as July, or as late as mid-2020 – making this an election that the entire property industry is going to want to watch.
Development Finance Partners