How the property markets will be affected by our new Labor Government?
Keywords: Michael Yardney, Property Investment
by Michael Yardney, director Metropole Property Investment Strategists.

Many home owners and most property investors are wondering what the change in government is going to do for house prices and for the future of the Australian property markets.

There is strong evidence that property values and rentals will increase over the next few years in most of our main capital cities and it’s not for the reason most votes think.

I have already heard some older property investors worrying about soaring interest rates, remembering that last time the Labor Party was in government rates rose to over 18%, slaughtering the property markets for around 3 years.

On the other hand a generation of voters who don’t remember how our property markets faired under the last Labor government are excited by the change.

While many young families and some home owners who are struggling to pay their mortgages want to see housing affordability increase, property investors and many of the 70% of Australians who currently own their own homes are happy with the way most of our property markets are booming. They are waking up richer than they went to bed the night before as the value of their homes and investment properties rise.

The latest figures from Residex www.residex.com.au show that home prices around our capital cities have grown strongly in the last year. These figures show Brisbane led the way with a median house price growth of 18.46 per cent in the year to October. Even Perth, which in a property slump, showed some price growth in the last quarter.

Property It seems the common perception is that under a Labor government wages rise, as do interest rates, and that property markets fair well. In contrast it is often said that the stock market performs better when the Liberal party is in power.

So will interest rates rise under the new Rudd Labor government and what will this do to inflation and the property markets?

Will the Labor government be able to make housing more affordable?

Well…interest rates will rise and so will inflation! But this would have also occurred under a Liberal government.

Our record low unemployment will ensure that some of the Labor party promises will cost more than they anticipated. And the Government will have to keep importing skilled migrants who have to live somewhere which will push up rents and property values, particularly in the capital cities of Melbourne (which gets a disproportionate share of immigrants), Brisbane and Sydney.

This will obviously do nothing to help housing affordability, but fixing this problem would always have been difficult.

Low affordability is due in part to:

1. Rising interest rates
2. Demand for housing far outstripping the supply of new properties.
3. The high cost of new development including limited supply of new land, high infrastructure costs, expensive planning costs and high construction costs.

Of course only some segments of Australia are experiencing housing affordability issues. These are mainly first home buyers and low income home owners who are struggling with their mortgages.

For many Australians who own their home outright, or bought it a number of years ago, affordability is not really an issue. The value of their homes has gone up with many doubling in the past 7 years or so, giving their owners a hefty amount of equity in their properties.

If you think about it house prices wouldn’t be rising by ten, fifteen or twenty percent each year in Melbourne, Brisbane, Adelaide, Canberra or some of the affluent suburbs of Sydney if properties were unaffordable. The more affluent Australians are not really concerned about affordability and even many so called “middle-class” Australians have so much equity in their homes that they can afford to borrow to upgrade their homes or to purchase an investment property.

The problem for Kevin Rudd is that there is no simple way to make housing affordable for first home buyers and at the same not disenfranchise the 70 per cent or so of Australians who already own their homes and don’t want to see the value of their houses go down.

The Labor party has suggested that it will leave negative gearing intact and may offer tax incentives to property investors to encourage them to buy investment rental properties that cater for the low to moderate end of the rental market.

With our low vacancy rates, and lack of new construction to cope with current demand, together with our changing demographics and large number of new immigrants requiring housing, there is only one way for property prices and rents to go – and that is UP!

Even if some of the new government’s policies were effective, there will be a long lead time and the natural forces of supply and demand will push up rentals and property values over the next few years.

The property markets may falter a little as the uncertainty of change will cause some buyers to procrastinate and delay their purchasing decision. And the inevitable interest rates rises will slow things down a bit (that’s what they are meant to do.) But the value of well located properties in our capital cities will continue to go up, as will rents.

One factor that investors should consider is what is going on in the world economy right now.

The Australian economy has had a dream run on the back of a strong world economy and the boom in China and India. Like all booms this must eventually. Also it is likely that there will be more fall out as the US Credit crunch progressively unwinds and further losses are revealed and the likelihood of a US recession increases.

There will be interesting times ahead, but Australian property owners can take comfort from a recent study by the Department of Finance, Banking & Property, College of Business, Massey University in New Zealand, which looked at “Investment Returns under Right and Left Wing Governments in Australasia.”

They looked back at Australia’s economy since the early part of the 20th century and concluded that left of centre governments are more concerned with controlling unemployment than right of centre governments and that this can lead to increased inflation.

While they found the stock market outperformed during periods when the country is controlled by governments formed from the right of the political spectrum, however they were surprised in the results they found for property.

Given the natural inflation hedge of property the researchers expected to find property would outperform during the term of office of Labor governments, yet they found that the average property return was 15.53% during Liberal and 14.87% during Labor governments. In other words the difference in returns was insignificant.

So my advice to you is: if you are a “long term” player in our property markets, as either a home owner or property investor, then take a long term view and take advantage of any weakness in our property markets during the upcoming time of adjustment to judiciously buy the best properties you can afford.

About the Author:

Michael Yardney is Director of Metropole – Property Investment Strategists, and a leading property commentator and publisher of Property Investment Update. Subscribe for free at www.PropertyUpdate.com.au

He is also author of How to Grow a Multi Million Dollar Property - in your spare time and co author of All You Need to Know About Buying and Selling Your Home

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