This isn't a critical election for property – whatever else the politicians say. Population growth - which looks secure - is more important.
Investors should focus on population this election
Investors should focus on the Big Australia number this election
It is fair to say that federal governments over the last decade have plumbed new depths of self-destructive shenanigans. Yet neither governing party nor any of the five prime ministers of this period have caused a rush to the property exits. In 2004, houses were held by an owner for around seven years, according to CoreLogic. In 2014, this measure rose to 10.5 years. More recent data shows annual turnover rate for property falling since 2014, so it is likely that average tenure has lengthened further still.
Of course, all sides of politics will attest that this election is the most important election ever and property has been presented as a key battleground. But this election will only really matter for property if there are policies that materially impact supply or demand.
Labor offers some change to the status quo. On the demand side, Labor’s negative gearing and capital gains plans have been thoroughly dissected. They will make life tougher for new investors in the established market, and I am concerned that excluding off the plan developments from negative gearing changes will divert some investors to an asset type that consistently delivers a poor return.
But there is another Labor policy that could mitigate this risk. A Labor government would encourage increased take-up of build-to-rent development by offering improved tax concessions to investors.
The off-the-plan sector is struggling, so the improved tax concessions may nudge some developers to lease apartments rather than sell them to owner occupiers and private investors. Or we may see the entry of experienced international build-to-rent operators that supplant the off-the-plan incumbents.
There are doubts whether Labor’s build-to-rent plan offers enough incentives to overcome concerns that the rental yields will still be too low given the capital tied up and risks involved. From a societal point of view, it is also unclear whether the policy would increase the housing stock or just deliver a change to a more corporatised ownership structure.
Put together, the overall impact on the property market of Labor’s policies are likely to be modest at worst, particularly given the negative gearing and CGT grandfathering arrangements for incumbent investors.
However, the elephant in the room for both the government and the opposition is population policy.
Here the news is unreservedly good because, surprisingly, there isn’t really any news.
Despite years of political rhetoric about curtailing immigration and population growth, both parties are studiously avoiding anything that would do that. Back in March, the government declared an annual permanent migration program ceiling reduction from 190,000 to 160,000. But rule changes over previous years had already lowered the number of visas to this level, so in effect, the government was signaling that no further tightening was planned. Labor has indicated it is comfortable with this level.
Consequently, the Budget papers outlook for net overseas migration for the next four years sits at an annual increase of between 259,000 and 272,000 every year until 2022. These are numbers as good as or better than net overseas migration levels of the last decade. The figures suggest that the government expects more migrants from outside of the permanent migrant program. That might include a jump in temporary visas and arrivals from New Zealand.
With both main parties flagging that they will largely leave population growth unchanged and therefore avoid a damaging demand shock, one can be confident this won’t be a critical election for property – whatever else the politicians say. R Wakelin