Risk of recession raised as potential Labor policy outcome

The risk of a recession - or even depression - has been raised as a potential outcome by opponents of Labor's negative gearing property policy.

It is a pity the policy is just 94 words. It is a pity the worthy debate sits within the election campaign.

But these forecasts have come from property veterans who've seen the residential markets through its many cycles over decades. They know all too well the herd mentality into and out of property.

It was industry leader, Mark Steinert, the Stockland boss, who first expressed his fear of recession earlier this month. 

Mark Steinert, chief executive of Australia's largest residential property developer, Stockland, believes Labor's housing policy has the potential to destabilise the entire economy – to the extent of risking a recession.

He suggested governments cannot deal with the affordability issue by de-stabilising the largest asset in the country.

These fears were echoed by veteran mortgage broker, Aussie John Symond who has long been concerned about any tinkering with the preferred investment vehicle of mum and dad investors.

Symond has warned of a potential recession if Labor's plan to limit negative gearing to newly constructed dwellings goes ahead after July 2017 should Labor win government at the July 2 election.

The founder of Aussie Home Loans predicted a slide in the value of all home prices under Labor.

"It is frightening and it will frighten others . . . and it creates this stampede."

His concern is that there could be a glut of properties come on the market, force the prices down, and then "all of a sudden it could be Armageddon with the housing industry that's propped up the Australian economy the last four years."

Mark Steinert actually went further than suggesting a recession. "It will be a depression," noting that property is such a major force driving Australian growth, that even a small change in sentiment flows through the entire economy. 

"It becomes the new dinner party conversation.... people feel poorer. 

"They buy less in the shops and people employ less ....that is how markets work."

Australia has avoided for recession for so long now many press commentators have no context for considering what happens to property markets in a recession.

Glenn Stevens, the outgoing RBA governor, recently noted shocks are inevitable.

"One way or another the human condition is characterised by things happening that were not well predicted and for which we are sometimes less prepared than we might, in hindsight, have wished to be."

I am old enough to remember the last few recessions, with property crash, but recent generations of buyers aren't. 

While it was not a recession there are still plenty of buyers who got caught out in the last big 2003/2004 apartment property boom bust - and some of these buyers are still underwater.

Since then there have been a rollercoaster series of dips, the biggest after the global financial crisis which triggered extraordinary government incentives to boost the property and related industries.

More recently we have had the backdrop where Chinese buying of apartments has enabled Australia avoid going into recession following the dramatic decline in Australia's mining investment industry.

Though some buyers have in recent times been struggling to get their money back after paying crazy prices, but any recession will see much wider suffering for even the more considered acquisitions.

Thankfully first home buyers haven't been big participants in the recent market, rather mature SMSF property investors and family home upgraders with record low mortgage funding.

Hopefully their circumstance might be better able to weather any downturn.

This article was first published in the Saturday Daily Telegraph.