The differences in housing/property related policy between the two major parties have been well publicised – namely negative gearing and capital gains tax.
But what about all the ways both parties are actually aligned?
We took a look at four key areas where both Labor and Liberal federal governments largely agree on policy decisions, and why these areas are fundamental to the long-term performance of residential property.
Australia’s population has been growing well ahead of previous forecasts, with most of the population choosing to live in our capital cities.
In the 2018 financial year, Australia’s population grew by 391,000 people, with 79% of this gain concentrated in the major capital cities.
Both Labor and Liberal governments largely agree on population growth. Overall no change is expected in overall population growth with overseas migration remaining consistent.
The Liberal party proposed to cap permanent migration levels from 190,000 to 160,000, which Labor agreed to implement also. However, this would reflect no real change, as in practical terms, Australia only took in 162,417 migrants (over the 2018 financial year), regardless of having a higher cap in place. As a result, were the proposal to be implemented, it’s expected to have little to no impact and population growth in Australia, particularly in major capital cities, will continue to remain strong.
Both parties appear to have shifted discourse on population growth concerns to instead focus on new infrastructure development and spending.
Both governments, including at state levels, have been prioritising and accelerating delivery of major infrastructure programs across the country, to support population growth.
As a result, both parties at federal government level have committed significant investment into major transport and city infrastructure.
This includes the continuation of a $100 billion decade-long infrastructure plan, which not only contributes to ongoing jobs creation, but also directly impacts property in areas which are set to benefit from new infrastructure projects once built.
The Federal Budget revealed that most of the infrastructure spending would be concentrated on rail and roads. Some of the headline projects included New South Wales’ $3.5 billion Western Sydney North South Rail Link (first stage) and Victoria’s $2 billion fast train between Melbourne and Geelong. Also, nationally the Urban Congestion Fund increased from $1 billion to $4 billion to fund projects aimed at reducing congestion in urban areas. Labor has agreed to match this level of funding and has highlighted a greater need for centralised decision making for the independent Infrastructure Australia body.
Income tax cuts
Labor and Liberal have both proposed to deliver income tax cuts in a bid to boost savings and strengthen household finances.
Both are proposing to increase a tax offset for low- and middle-income earners. Both parties are offering an increase in the 37% tax-bracket threshold to $90,001 from $87,001 currently. However, the main difference is that Labor has promised to increase the tax offset for people earning less than $48,000 a year whilst taxing people who earn over $180,000 a year a little higher than the Liberal party.
The promised tax cuts from both parties come at a time of very low unemployment levels and where the market is now seeing some positive signs of wage growth.
The ABS recently reported 0.5% wage growth in the March quarter and 2.3% wage growth per year.
“The Australian labour market remains strong. There has been a significant increase in employment, the vacancy rate remains high and there are reports of skills shortages in some areas.” – Reserve Bank of Australia
First home buyer incentives
Both parties have also agreed to adopt a first home buyer policy in an effort to improve housing affordability. The government proposes to set up a scheme to offer loan guarantees for first home buyers, so they could buy a property with deposits of just 5% of the purchase price.
This is expected to add some pressure to property, particularly at the affordable end of the market.
Federal election results – impact on property investors
With the election only a day away, it’s no surprise that both parties are loudly broadcasting their differences, particularly around negative gearing and CGT.
However, population growth, infrastructure investment, tax cuts and incentives such as first home buyer guarantees are key policy areas where both parties largely agree. And these are important fundamentals which contribute to ongoing demand for residential property.
Other market factors, outside of political forces, remain relatively buoyant also. For example, the very low unemployment rate of 5.1%.
That said, without discounting the role of politics in influencing the market, historic data shows that whilst parties and Prime Ministers may come and go, longer-term demand for residential property has remained strong.
For example, over the past 26 years, we have had shifting Labor and Liberal governments and a total of seven changes in Prime Minister and the property market long term trend has been up. Houses have grown from $130,893 to $640,174 and apartments from $111,418 to $460,327 reflecting an average compound annual growth rate of 6.30% and 5.61% respectively.
We will continue to monitor what’s happening in the market after Australia heads to the polls tomorrow. Stay tuned for our post-election update.