The post election outlook for housing policy: Peter Chittenden

Seven weeks ago as we all went into election mode I noted that housing policy appeared to be pretty much missing from the political debate. While an interest rate cut by the RBA was announced at the start of the election, last week another cut did not follow, and hardly anyone appeared to notice. While in Sydney this election weekend auction clearance rates remained at record levels and possibly heading for 90%.

Over the past six months the dynamics of the residential property market have shifted up a few gears. However, now as we enter a new three-year term of a Liberal lead federal parliament, housing policy will be near the top of the priority list for the new government.

Even at this very point I think housing policy should at least be on the to do list. Here are some reasons why and many of the points are old issues that simply refuse to go away.

Low interest rates will not last forever

So lets start with interest rates, because as a key plank of the economy interest rates rank alongside growth, inflation and unemployment as key indicators. Home loan rates are now well below 5%, they may not go much lower and they are not set to rise anytime soon.  It is clear that low rates are helping to keep demand high and sooner or later they will rise. Retirees on fixed incomes might be wishing for that increase to be sooner.

However even with very competitive interest rates for some time now home ownership has been falling since the 1970’s. This trend suggests that low rates do not bring about lasting improvements in affordability. So in two or three years time if rates head up from their current lows this will have a big impact on affordability.

The key aspect of interest rates will need to stay on the new governments agenda because an increase of 25 or 50 basis points will soon hurt buyers used to low rates.

Infrastructure now into emergency settings

Infrastructure policy is very closely aligned to housing and it was one of the topics to get headline attention, in New South Wales Sydney’s second airport got another airing. The new government has stated its intention to move some expenditure into more roads. But the real question that remains is will badly neglected urban infrastructure get the attention it desperately needs.

There are some big-ticket items like the airport, but across almost every major city there is a huge backlog of projects both big and small and now there is also the bogeyman of needs to maintain some of our major infrastructure, let alone get new projects underway.

So along with keeping an eye on interest rates the future infrastructure minister will be busy and we should not forget the fate of the NBN here, because as anyone marketing a new development knows, internet access is today a key point for any buyer.

We need more housing

There is a compelling case to encourage the construction of more new homes because even on the most basic count – according to most industry bodies – we are building around 150,000 new homes a year, but we need 200,000, and a short fall of 50,000 year on year is a time bomb.

The construction industry post-mining boom claims that it is being held back by a lack of skilled workers, never ending red-tape, compliance issues and banks still making finance hard to access – so yet again another big policy area for Canberra and the states.

Tax

The new government in Canberra has promised a big picture tax review and as far as the housing market goes that’s something that may well open a can of worms. But again that’s another key issue that got little attention over the last six weeks of campaigning. Local and state governments still gain 45% of their revenue from property related taxes. Transaction taxes alone account for 14% of that revenue among the highest rates in the world.

Housing Finance

Even before commenting on housing finance it’s hard to understand why housing should have been relegated down the list of policy priorities during the election campaign, given these key points.

Having touched upon the topic of interest rates and infrastructure housing finance, let’s bring these two topics together. There remains a suggestion that an easy financial model should be found to allow superannuation savings to be invested into housing finance and as a way to fund infrastructure. This sort of secure and attractive fixed rate alternative to the sharemarket would, I suggest, be very welcome by the very same retirees now facing low bank deposit rates along with fund starved infrastructure projects and homeowners.

So looking back over the election campaign could it be suggested that a very active market with strong demand, and some record prices simply have relegated housing policy off the agenda.

But now I think that view needs to shift and the new Abbott government in Canberra does need to soon acknowledge the key role of housing policy.