House Prices and Government: What Are They Doing to Help?

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With elections around the corner, an upcoming political hot-topic we’ll be seeing in the news more is what is occurring with Australia’s house prices. According to Corelogic data, Australian house prices rose by a median value of $103,000, pushing affordable living further away from the everyday Australian. Vision Property and Finance will read between the lines to determine the facts from the fiction as to what the government is doing to make housing more affordable in House Prices and the Government: What Are They Doing to Help?

The Key Issue for Affordability

A reason for these significant increases in house prices is demand outstripping supply. More people want to live centrally in areas that have been slow to expand their housing supply. That has led to increased demand for alternative locations, such as Newcastle, Brisbane and Tasmania, which are now also struggling for supply.

The Demand Side

Demand for housing has grown rapidly over the pandemic, largely due to the RBA sustaining Australia’s lowest ever interest rate. This means that the cost of being lent money from a bank is the lowest it has ever been. Not only are more first home buyers clamouring to seize this opportunity, but property investors are as well.

The RBA argues that this low-interest rate increases spending in the economy, promoting more jobs and wage growth which can then increase prospective home-buyers’ propensity to save for a deposit. There is also the argument that this low rate is driving more, higher-earning property investors into the market, taking away housing opportunities for first home buyers.

The Supply Side

Housing supply is a key issue in what is driving up property prices. Houses aren’t being built in areas at the same rate as they are being demanded. Alongside this, property investors do not have the financial motivation to sell or downsize. This is due to the political issue of negative gearing. Negative gearing acts as a tax incentive for property investors to keep their investments, with now more than 2 million Australian property investors potentially benefitting from the scheme.

The Australian Labour Party (ALP) lost the 2019 election with removing negative gearing being one of its main agendas. This demonstrated that this issue is politically contentious and has the potential to derail a political campaign. The ALP has dropped its agenda for removing negative gearing in 2022, thus removing any incentive for property investors to free up housing supply by selling.

What about Grants and other Monetary Schemes?

To benefit specific customer segments, there is an argument for house prices and the government providing more monetary incentive for first home buyers and others who are struggling to get onto the property ladder. Generally however, these tend to only cause house prices to increase further due to competition between buyers, with the grant ultimately going to the property seller.

What Now?

Policy decisions and market factors are always changing, and so is investment advice. Consulting the services of a qualified property and finance expert can help you make sense of these changes and recommend the best way forward.

In most cases, the services of a mortgage broker are paid for by the bank, as they are receiving better quality loan applications. This means that you do not directly pay for a broker at all! If you’re looking for best advice on the home loan market, government policies and schemes, and for putting together a loan application, get in touch with us here.