General Information

INFRASTRUCTURE COMMITMENTS SPARK ACTIVITY

Since its surprise win in the Federal Election, the Morrison Government has hit the ground running in a number of key areas. This includes a huge commitment to infrastructure spending. The following graphic illustrates the scale and breadth of the infrastructure program with Victoria receiving the most, followed by South East Queensland.

CONSUMER CONFIDENCE ON THE RISE

There has been a noticeable increase in consumer confidence post-election in response to a number of key initiatives. There has been a corresponding increase in activity in the housing markets, with enquiry rising significantly over the past month. The removal of negative gearing on established properties going forward, and a reduction of capital gains tax concessions proposed by Labor were proving to be a major concern to property investors, and the elimination of these issues has provided a clear path for future investors. With the proposed changes to lending guidelines by APRA, interest rate cuts and proposed assistance for first home buyers, there has been a boost to confidence in the housing sector. While fundamentals remain a challenge in the short term, there is reason for cautious optimism in the longer term.

INCOME TAX

The Government is pressing hard to get support for its proposed income tax package, which is due to go before parliament when it resumes in July. The Coalition maintains it has a mandate to pass the tax package in its entirety and as a priority. Arguing that the Senate needed to respect the verdict of Australian voters at the election and pass the government’s three-stage $158 billion tax cut plan, the Government has called on Labor leader Anthony Albanese to back the changes. Labor looks likely to support stages one and two of the package but has so far indicated it does not support stage three, scheduled to begin in 2024-25, which benefits high-income earners. With 35 seats in the Senate, and requiring 39 to pass legislation, the government will need the support of the crossbench if Labor does not provide its support.

In addition, the Government has commenced implementation of the massive infrastructure program that was outlined in the recent Federal Budget and as part of its election commitments. In conjunction with the significant infrastructure commitments by state governments, this will contribute to substantial employment and economic stimulus.

APRA CONSULTS INDUSTRY

The Australian Prudential Regulation Authority (APRA) has been consulting housing industry leaders and peak bodies in relation to its proposed changes to residential mortgage lending guidelines. As an industry leader Satterley was called on to provide a submission. The restrictions introduced previously by APRA were seen as being both too late in the housing cycle and too severe. The proposal to allow lenders to test borrower’s serviceability at 2.5% above their lending rates is seen as a very positive move, particularly in light of the Reserve Bank of Australia’s recent reduction in the cash rate. Satterley consider a buffer of 2.0% adequate. The previous floor rate of 7% saw lenders generally testing against 7.25% to provide some buffer, and APRA now propose lenders apply their own floor rate. Satterley consider that a buffer approach is adequate without the need for lenders to also have their own floor rate.

The RBA cut the official cash rate by 25 basis points to 1.25% in June.  This was in response to higher than expected unemployment and below-target inflation. Whilst the reduction in the cash rate provides some help for the weak property markets nationally, this is indicative of greater issues with the economy as a whole. The RBA will be looking carefully at these key indicators going forward in an attempt to create economic stimulus, and specifically asked the governments of Australia to assist economic growth through infrastructure spending.

NEW HOUSING MINISTER APPOINTED

In another positive initiative for the housing industry, the Government has appointed a dedicated Housing Minister, Michael Sukkar. Through the new Minister, the government is consulting with the housing industry and peak bodies on ways to improve the effectiveness of government policy on the sector. Satterley lead the industry lobby group that resulted in this appointment, which is the first time Australia has had a dedicated housing minister since Tanya Plibersek held this portfolio from 2007 – 2010 in the Rudd Labor government.

The Australian population continues to grow at around 1 million people every three years. The Australian Bureau of Statistics estimate the population grew by 404,800 people from December 2017 –to December 2018. This figure is likely to fall with a reduced migration intake however the Morrison Government has indicated it will continue to support selected immigration to assist with skill shortages in each state. (Source: Australian Bureau of Statistics (ABS))