• How the federal election could affect buyers

    How the federal election could affect buyers

    Try as the political parties might to paint the major issues of the day in black and white terms, the housing policies tabled at this election are far from simple.

    Ultimately, whether you judge a party’s proposed changes as good or bad boils down to a matter of perspective.

    Look at a policy from one angle and it seems unfair and nonsensical; from another, brave and justified.

    Here’s how the federal election could affect buyers.

    Federal election house and garden 
    Image: Milly Eaton

    Negative gearing

    The way the Liberals tell it, the choice voters face this election is a simple one: vote for the Coalition and the economy will prosper; vote for Labor and the economy will crash.

    Perhaps no policy debate has underscored this political messaging more than negative gearing. The LNP wants to keep the policy as it is, while Labor wants to limit the tax concession to newly constructed properties and those already benefiting from the scheme. 

    The LNP argues that Labor’s policy would lead to a drop in investor activity, to the extent that this would lead to a significant decrease in demand and a subsequent decrease in prices – and realestate.com.au’s Chief Economist Nerida Conisbee agrees. 

    “Modelling undertaken by both sides of government, as well as independent forecasters has shown that prices will fall and rents will increase,” she says. 

    “For prices to rise, we need strong demand conditions… We have already seen what a drop in investor activity can do to house prices, particularly in Sydney and Melbourne. Labor’s policy change will exacerbate this.”

    AMP Capital Chief Economist Shane Oliver offers a similar analysis.

    “It will make the market less attractive to investors, as their choice of property will be more limited, in terms of what properties they can negatively gear… which will mean less competition at auctions and a fall in prices,” Oliver says. 

    And so, Labor’s negative gearing policy is seemingly good news for buyers, as it should make homes cheaper to buy.

    However, given the tax break isn’t worth much “in the context of the $7 trillion housing market”, Grattan Institute researcher Brendan Coates argues that the policy will have less of an impact on prices than most people predict. 

    “The value of the tax breaks that Labor are proposing to get rid of are probably worth around a billion dollars a year,” Coates says.

    “And even if you gross that up to what the long-term value of that is… then you’re still talking about a fall in property prices that you would really need a microscope to see.”

    Coates adds that Labor’s proposed changes to negative gearing will make it easier for first-home buyers to get a foot on the property ladder, as it will result in less competition from investors who tend to bid for the same properties as first-home buyers.

    Federal election aerial view 
    Image: David McBee  

    Capital gains tax

    Currently, people who sell an investment property that they have owned for more than 12 months are eligible for a 50% discount on the tax, which they would normally have to pay on any profit made from the sale.

    As with negative gearing, the LNP wants to leave this policy as it is, while Labor wants to reduce the discount from 50% to 25%, in an attempt to tilt the playing field in favour of first-home buyers.

    “All the political focus is on negative gearing because it’s more visible, but it’s the capital gains tax discount that will make more difference in the long run,” says Coates. 

    “And to the extent that Labor’s policies have an impact on prices, it will be felt more from the capital gains discount change than it will be from the negative gearing change – because it’s worth more.

    “[Labor’s] negative gearing [policy] is only going to save a few hundred million dollars in the short term, and a billion or so in the long term, whereas the capital gains discount change will be saving a couple billion dollars a year.”

    Labor’s capital gains discount would spell good news for buyers, particularly first-home buyers, as they will face less competition from investors, especially at auctions.

    Federal election house image  
    Image: Brian Babb


    Originally published on realestate.com.au as How the federal election could affect buyers.



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    About the author

    • Raymond

      Raymond A Ram is the RAMbassador for RAMS Financial Group. Raymond works with the RAMS team to bring simple, helpful and expert information on home loans and savings accounts to life with his down to earth and cheeky personality. He enjoys seeing everyday Australians turn their dreams of saving for a goal or getting into a home a reality. 

      Growing up in Goulburn, NSW, Raymond was brought up with good old-fashioned Aussie values of hard work and a fair go. It soon became apparent that Raymond wasn't content for the conventional path of grazing, producing the very best wool, and finding a nice sheep to settle down with. So it wasn't long before his passion for performing and his talent as a likeable larrikin shone through - landing him a few roles such as 'RAMlet'. He was even tipped to play RAM-bo at one point but chose to become star of the small screen instead as RAMbassador for RAMS. He now finds this role so much more rewarding.

      Contact your local RAMS Home Loan Centre about your home loan options.

      Raymond A Ram

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  • Disclaimer:

    This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.