FEDERAL ELECTION ANALYSIS – MAY 2019

In a surprise Federal Election result, the Liberal - National Party Coalition lead by Scott Morrison has been returned to power. Pre-polling had consistently predicted a win by Bill Shorten and the Labor Party, although the gap was narrowing as the election drew nearer. Exit polling also pointed to a Labor win however a narrow swing to the Coalition delivered a result to the Government that defied all expectations. 

The Coalition has reached the target of 76 seats for a majority government and is on track to secure as many as 78 seats with Labor falling well short with 67 seats.

The fall-out from the election indicates that Labor policies to limit negative gearing to new properties in the future, reduce capital gains tax concessions by 50% and abolish cash refunds for dividend franking credits proved unpopular with the majority of voters. Bill Shorten has resigned as leader of the Labor Party and Anthony Albanese is set to take over in the near future.

The return of the LNP Coalition means tax concessions or cuts for 10 million low to medium income Australian workers in 2018/19 with further, broader cuts in future years. With a projected return to Budget surplus in 2020, it is hoped that these cuts will flow on to provide broader economic stimulus. There has been a definite improvement in consumer confidence following the election outcome. 

Prior to the federal election, Nigel Satterley led an industry lobby group seeking a dedicated Federal Housing Minister and welcomes the decision to appoint Michael Sukkar to this important role.

Of significance to the land and housing market is the Coalition’s proposed First Home Loan Deposit Scheme. Under the Scheme, eligible first home buyers will only need to save a 5% deposit with the Government guaranteeing the balance of the required 20% deposit. This will mean that eligible first home buyers will be able to purchase a home earlier than they would normally. Also, they would not be required to purchase lenders mortgage insurance saving them up to $10,000. There would be maximum property value caps and a maximum income for singles of $125,000 per annum and $200,000 for couples. This scheme would be limited to a maximum of 10,000 loans annually. It is anticipated that, if introduced, these measures will provide some stimulus for the weak national property markets.

The Reserve Bank of Australia has indicated that the official cash rate is likely to be cut in June. Higher unemployment is preventing inflation targets from being achieved, leading to the Governor of the RBA flagging the likely rate cut and encouraging the Government to introduce structural reform and increase infrastructure spending.

In another potential boost for the housing market, Australia’s prudential regulator is also considering loosening lending restrictions. The Australian Prudential Regulation Authority (APRA) is considering scrapping its 7% ‘stress test’ buffer on home loan serviceability and allowing banks instead to assess loans at 2.5% above current rates. It is expected that this will increase the borrowing capacity of new borrowers and enhance the effectiveness of the transmission of future Reserve Bank rate cuts. As an example, a couple with joint income of $130,000 could potentially have an increased borrowing capacity of around $47,000. This could see an entirely new cohort of buyers entering the market.

See important disclaimers.