What's in store for Australian house prices under new government?

Highlights

• The Reserve Bank’s latest interest rate hike has helped ease some of the pressure on the housing demand.
• The Albanese government has promised a set of reforms for the housing population.
• The supply-side challenges might make it harder for the Labor government’s policies to shape up into reality.

With property prices moving out of control during the pandemic, Australia’s housing price crisis had put immense pressure on the previous government to control rising living costs. Much of the global momentum in prices quickly travelled to Australia as supply-chain snags became increasingly persistent. The government may not be able to control many of the price pressures due to their external nature. However, the onus of uplifting the population ultimately falls on the policymakers.

Under the Coalition government’s rule, property prices increased significantly, and the unaffordability in the housing market became a critical matter. To control elevated prices, the Reserve Bank of Australia (RBA) recently increased the interest rate, given the massive uptick in borrowing. The amount of mortgage lending is at an all-time high in Australia, bringing a large population under debt.

Over the past few years, many Australians have been forced to live without a housing arrangement, and many have started living on rent. The Reserve Bank’s latest interest rate hike has helped ease some of the pressure on the housing demand. However, a long-term solution is needed to cure Australia’s housing affordability crisis.

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Rising interest rates and housing market

The housing market is expected to be marked by a period of rapid interest rate hikes by the central bank. Following in the footsteps of the US Fed, the RBA is anticipated to conduct larger rate hikes in the subsequent months. Moreover, it will be enticing to see what the newly elected government can do to change how rising rates influence the market.

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Higher interest rates are often accompanied by declining housing prices. Meanwhile, elevated borrowing costs mean home buyers have to suppress their demand and depend on temporary shelters. Most Australians might delay big expenditures like buying a house in a high interest rate environment. Thus, rising interest rates act as a double-edged sword as they help lower prices but at the cost of declining housing conditions for the population.

Rising interest rates have already shown an impact on the housing prices of Sydney and Melbourne. Both capital cities have surpassed their housing price peak, though prices continue to remain at high levels. The National Australia Bank (NAB), one of the big four banks, forecasts that prices will rise by 2% in 2022 before falling by 10% next year. This contrasts with the general trend of falling prices amid a high interest rate scenario.

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What is Labor doing for home buyers?

The newly elected Labor party has announced a set of generous policies for the population aimed at climate change, aged care and childcare. For first home buyers, the party has introduced the “Help to Buy” scheme, where the government will be made part-owner of the house. Under the scheme, 10,000 places a year would be funded by the government, boosting the demand for housing, and providing shelter to those in need.

Eligible home buyers would have to put in a deposit of 2%, with an equity contribution from the Federal Government of up to 40% of the purchase price of a new home and a maximum of 30% of the purchase price for an existing home. Thus, for a homebuyer who is buying the property at a maximum price cap of AU$950,000 with 40% equity, monthly mortgage payments would be more than AU$1,600 cheaper.

With the current supply crunch weighing heavily on the construction sector, PM Anthony Albanese’s housing scheme may need time to take shape. However, the scheme is expected to help alleviate some pressure from the demand side and reduce homelessness among the younger population.

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