Bad vibe on ALP housing plan

It is a brave politician — courageous even — who messes with the great Australian dream. Yet Bill Shorten and Labor are committed to a dramatic shake-up of the housing market driven by effective taxation increases in the investment sector. Whether for good or ill this policy prescription must flow through to all sections of the housing market; designed to lower prices and boost supply, it could backfire. This is a country where the principal place of residence — the family house — holds special taxation and asset status and an almost sacred place in our culture. As the suburban everyman Darryl Kerrigan says in The Castle, “It’ not a house, it’s a home, and a man’s home is his castle.” Because the family home is usually its most substantial investment, market fluctuations and rules around taxation, asset tests and investment are not only crucial to the economy but highly sensitive politically. We have begun to see increased tension between the eagerness for homeowners to see asset appreciation and rising concerns about housing affordability. This can crystallise as an intergenerational conflict, where an asset boon for the baby boomers has created a pricing barrier for millennials.

Like many aspects of politics and economics, the art is in getting the balance right. Two years ago, when Labor announced its policies to restrict negative gearing on existing homes and half the capital gains discount from 50 per cent to 25 per cent, all of the worries and prospective remedies focused on making housing cheaper — taking heat out of the market so that first-home buyers could get in. Now, in the crack of an auctioneer’s hammer, the situation has changed, with prices falling across the major cities of the eastern seaboard and fears escalating about depreciating assets and a possible decline in housing construction. In that perceptive movie, Kerrigan’s son Dale drew laughs with his dopey take on every mortgagee’s deepest fear: “Dad still can’t work out how he got it so cheap; it’s worth almost as much today as when we bought it.”

The housing market is in a perilous state despite mortgage rates hovering near record lows. Clearance rates are down and prices have fallen by 6 per cent on average in Sydney and 4 per cent in Melbourne over the past year. Analysts expect the decline to continue into next year — probably taking the fall into double figures — driven by tighter finance provisions in the wake of the banking royal commission, small increases in mortgage rates driven not by official increases but by the financial institutions’ capital costs, and a lack of wage growth stymieing confidence. Despite unemployment now hitting a seven-year low and economic growth running higher than expected, analysts expect the market to remain soft. They suggest that with the royal commission final report due early next year and state elections looming in Victoria and NSW before a federal poll, a lid will be kept on both confidence and approvals. To keep perspective, prices rose by 75 per cent in Sydney in the five years to 2017 and 60 per cent in Melbourne. The correction, so far, is not dramatic.

Still, this is not an ideal time, politically or economically for Mr Shorten to push increased taxes and restrictions on housing investment. A report prepared for Master Builders Australia says the changes could cut the number of new dwellings by 42,000 over five years, leading to 32,000 fewer jobs. “The modelling in this report shows that limiting negative gearing to new homes and reducing CGT discount to 25 per cent will reduce new supply at a time when the construction cycle has already turned,” the report says. As our property editor Turi Condon wrote yesterday, Labor’s policy risks hitting the market at the wrong time. “Rather than making housing more affordable for first-time buyers, Labor’s policy may undermine confidence at the nadir of the market and prolong the downturn,” Condon noted. The issue sparked hot debate in parliament yesterday as Labor questioned the accuracy of the modelling and the government claimed the policy would create a “downturn” in the market. If Mr Shorten thinks his housing investment and taxation policy will be an easy campaign sell, someone needs to tell him he’s dreaming.