Property investors: Will this Labor government help or hinder you?

With prime minister Anthony Albanese well underway in his second term, property investors are closely examining how the Labor Party’s contentious housing policies might help or hinder their medium- to long-term plans.

The Labor Party is standing by its policies on boosting housing supply, supporting first-home buyers and incentivising construction – all promises which helped win the election and have both direct and indirect consequences for property investors.

Housing supply initiatives

Given the current housing crisis, Labor’s main focus is the ambitious goal of building 1.2 million new homes by June 2029 under the National Housing Accord. This includes a $10bn investment aimed at delivering 100,000 homes for first-home buyers.

The lofty goal has always been in question but came under scrutiny in July when internal Treasury notes were accidently published, revealing the new homes goal is unlikely to be met. 

Albanese’s government is also expanding the First Home Guarantee scheme that will eliminate Lenders’ Mortgage Insurance for tens of thousands of first-time buyers, and has promised to invest $54m in prefabricated housing to fast track construction.

Under the $800m Help to Buy scheme, and its more generous property price and income caps, more first-home buyers will be able to access government equity contributions and get on the property ladder earlier. 

Key considerations

Group executive manager of economics Angus Moore says that while housing chat consumed the airwaves around the federal election, it’s interest rates that make a more widespread impact for property investors. 

“Housing affordability has been at its worst level in three decades off the back of high mortgage rates. As rates start to fall, and affordability improves, we’re likely to see home prices pick up,” he explains.

An increased housing supply is what Australia needs, but property investors should take note; more homes can slow property value growth and potentially impact future capital gains.

More homes, especially in the affordable housing sector and high-density developments, may put downward pressure on rental yields – as well as capital growth – in certain market segments. 

Aus Property Professionals buyer Lloyd Edge says demand continues to outstrip supply when it comes to housing in many regions of Australia, regardless of which party is in parliament. 

“Every time there’s an election, the market slows down because people just aren’t sure what’s going to happen,” he says.

“What I’m finding from an investor’s point of view is that now Labor’s back in, one thing is clear – they haven’t been able to meet their housing targets. That’s a good thing for investors who are buying where there’s a shortage of housing. It’s not such a good thing if you’re a non first-home buyer, or you’re a renter.”

He adds that investors should also be aware that past events are often a good predictor of future events.

“I think interest rates might still come down, but if government starts spending a lot, and inflation goes back up, then interest rates might start going back up again,” he says. “That will put a pause on investors and how much they can borrow.”

Despite two cash rate cuts in the first half of the year, the Reserve Bank of Australia did not provide more relief after its board meeting in July, despite markets having priced in a 97% chance of a further 0.25% reduction.

If Albanese’s government overspends, as is anticipated, Mr Edge warns the housing market could experience a period in pause.

“That is a bit of double-edged sword for investors,” he adds.

Investing in tax breaks as a landlord 

Before most federal elections, the hot topic of negative gearing is often under the spotlight as parties grapple to win favor with certain cohorts. 

This time around, the controversial tax break wasn’t high on political radars with the exception of the Australian Greens. 

While Labor hasn’t yet announced any specific changes around negative gearing, the Treasury hasn’t ruled out exploring options to modify some tax concessions.

Mr Edge says while negative gearing remains for investors to help reduce their tax liability, it’s not a high priority for many of his investor clients.

“It’s a bonus, but it’s not a driver to get into investing,” he says. “A lot of my clients come to me and they are not even interested in negative gearing because it doesn’t even make sense.

They’d rather buy something that’s as close to neutral as they can or even positively geared, rather than being out of pocket every month, just to get a little bit of tax back at the end of the year.”

Labor’s build-to-rent program offers tax breaks to investors and is projected to deliver approximately 80,000 new rental units over the next decade. It’s a policy designed to encourage investment in long-term rental property, rather than short-term rentals.

According to Mr Edge, the incentive to invest in new property is one that investors should go into after doing their homework.

“In terms of buying something off the plan, or a house and land package, it isn’t the best strategy for me as an investor and a buyer’s agent,” he explains.

“Often those types of properties aren’t located in highly sought after area, especially house and land packages where there is a lot of land, which means there’s probably not going be to a lot of capital growth because there’s too much competition.”

Another risk for investors to consider when buying a unit off the plan is that it will be one of many very similar properties.

While property investors could be swayed by government benefits incentivising buying new, Mr Edge says it pays to not get distracted.

“As an investor, you have got to think about your long-term capital growth.”

This article first appeared on Mortgage Choice and has been republished with permission.

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