Is it possible there are no winners from the Federal Government’s property tax changes to CGT and negative gearing.
The rhetoric is that it will help younger or first home buyers. But here is the catch.
This cohort of potential buyers are;
- Usually renting and rents are rising (see Domain’s research released today)
- They are dealing with the cost-of-living challenges.
- It’s taking them longer to save a deposit and / or they are lowering their budget.
How far does the market need to fall to make it “affordable” for this cohort? 5%? … 10%? And what will that lower equity percentage do to banks problem loan provisioning and lending liquidity?
The various housing / taxation policies of both the State and Federal Government have chosen new home buyers over many others such as;
- renters (it has caused rising rents),
- investors (increased costs and tax) and
- existing homeowners (falling home prices).
But are new home buyers really winning? Are they buying?
The tax changes have flipped sentiment and all buyers get twitchy in a falling market. Auction clearance rates are well down and the median house price are down in Melbourne and Sydney. Maybe it is fuelling an existing soft market sentiment caused by other headwinds like 3 interest rate hikes in 12 months.
For the tax changes to be effective, they need to make housing affordable over a long term. Affordability is a relative or dynamic term. It is the mix between
- personal income / wages,
- cost of living and
- property prices.
Making homes more “affordable” is therefore only one piece of the puzzle.
The property market at the moment feels a bit like a train pulling into the station. Certain people (maybe some investors) get off and other people (first home buyers) get on.
But how long does it wait at the station? And then what?
The market has clearly taken a rest or paused. A minor drop in apartment and house prices means a few people (at the margin of the change) can now access the home market. If the train stays at the station (market stays flat) for some years, then the implied promise of wealth building through owning your own home is off the table in the medium term. But wealth creation is not the primary purpose of owning your home.
In a prolonged flat market, construction costs will keep rising (albiet at a slower pace), making construction of new apartments and houses harder. That is less supply and no help to budding home buyers.
Demand (net migration / population growth) will continue. Ultimately supply and demand fundamentals will force the train (property market) will pull away from the station and continue its long term trajectory. Economists call this mean reversion. In other words the property market growth will revert to its long-term average.
If buyers miss the train this time, how do they get back on next time? It’s a short term hit.
Each time the market has paused in the past due to shocks like the GFC, repeat interest rate rises, or Covid, it recovers and reverts to its long-term growth trend.
The recent Federal Government changes are a temporary jab to the market that is unlikely to deliver a long term solution.
Building more apartments and houses is the only sustainable way to help more people own a home. This means getting the many inputs or market settings right to make home building attractive. This is the only sustainable solution for housing and housing affordability.
The National Housing accord target to build 1.2 million homes is well behind and unlikely to get there.
Recent industry analysis suggests Australia is already falling well behind the pace required to meet its own housing targets. Construction commencements remain below what is needed, development feasibility continues to challenge apartment projects, and population growth continues to outpace new housing delivery. The structural imbalance that created today’s affordability problem hasn’t changed.
It’s difficult to know when the train will pull out of the station but please keep your ticket ready. Toot-toot 🚂
