Property Choices Down Under: A Lesser of Two Evils?

Recent analysis of housing policies proposed by both major political parties in Australia has sparked debate within the property sector. A radio interview on Brisbane’s 4BC Mornings programme dissected the proposed interventions, leading to strong criticism of the demand-side approach favoured by both Labor and the Coalition. The central concern revolves around the potential for these policies to further inflate already elevated house prices and increase household debt, impacting long-term affordability.

Analysis of Proposed Housing Policies

Labor’s First Home Buyer Support

The Labor government has proposed a scheme allowing first home buyers to purchase property with a deposit as low as 5%, with the government guaranteeing the remaining 15%. This initiative aims to lower the barrier to entry for first-time buyers. However, concerns have been raised regarding the potential inflationary impact of injecting additional demand into the market. Critics argue that this measure effectively introduces a state-sponsored subprime mortgage scheme, reminiscent of policies that have contributed to housing bubbles in the past.

The argument against the policy rests on the principle that increased borrowing capacity will inevitably lead to higher house prices. With more potential buyers entering the market with government-backed support, competition for existing housing stock will intensify, driving up prices. This, in turn, could negate any perceived benefit to first home buyers, as they will ultimately be paying more for their properties and incurring greater debt. It’s a cycle that many industry professionals observe to be repeating of previous first home buyers stimuli offered over the last 20 years in the form of grants. What impact will this have on property managers? Rising values and more competition in sales will mean increased rental rates and investors looking to find a good tenant in a competitive property market.

Coalition’s Tax Deduction Proposal

The Coalition’s policy focuses on making mortgage interest tax-deductible for first home buyers purchasing *new* homes, up to $650,000, for individuals earning up to $175,000 or couples earning up to $250,000. This effectively allows negative gearing on owner-occupied new homes for eligible buyers.

While the Coalition’s policy is viewed by some as potentially better than Labor’s in its emphasis on stimulating new housing supply, its sustainability and equity are being questioned. The current federal budget is projected to remain in deficit for the next decade and this policy will widen to the budget deficit. Such is the complexity of tax laws and deductions; higher-income earners within the eligibility criteria would receive larger tax breaks than lower-income earners, raising concerns about fairness and budget impact. The impact for developers and real estate agents seems promising in these new zones, and the competition might be fierce for buyers looking to build a new home.

Contrasting Perspectives and Potential Outcomes

Both policies are, according to critics, primarily demand-side measures that risk exacerbating existing housing affordability challenges. Increasing demand without adequately addressing supply can lead to an inflationary spiral, benefiting property owners at the expense of those trying to enter the market.

Some analysts suggest that the Coalition’s policy, by focusing on new builds, could help alleviate some supply constraints, but they acknowledge that the impact may be limited given current economic conditions. Construction costs have risen significantly since the beginning of the COVID-19 pandemic, and there is a shortage of skilled labour in the building industry. Adding further demand to this sector whilst prices of construction and building materials continue to rise can increase the cost of new homes, thereby counteracting the benefits of the tax deduction.

The Immigration Factor

A key alternative perspective highlighted is the role of immigration in driving housing demand. The argument is that sustained high levels of immigration outpace the capacity to build new homes, contributing to housing shortages and increased prices. Reducing immigration would, according to proponents of this view, lower both rental and purchase prices, making housing more affordable for first home buyers. This, however, is a controversial viewpoint. A reduction in immigration would impact all professions from the property sector across to other industries, and might create a stagnation in the economy.

Conclusion

The debate surrounding these housing policies underscores the complexity of addressing housing affordability in Australia. The focus on demand-side measures, without addressing underlying issues of supply and population growth, raises concerns about the long-term sustainability and equity of the housing market. What measures might property professionals need to prepare for? The importance of strategic advice, thorough research, and an understanding of macroeconomic factors in navigating the Australian property market for property professionals such as real estate agents, property managers, developers, and investors is increasingly important.. The ongoing debate highlights the need for a holistic approach that considers all relevant factors to ensure a more equitable and sustainable housing future for all Australians.

Source: MacroBusiness, https://www.macrobusiness.com.au/2025/04/pick-your-housing-poison/

This article is based on a report from www.macrobusiness.com.au titled “Pick your housing poison – MacroBusiness”. You can find the original article here: https://www.macrobusiness.com.au/2025/04/pick-your-housing-poison/