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Can Labor Or Liberal Save The Housing Crisis? · The Follio Property Podcast

• 0:05
  Welcome to I Call Bullshit Property Podcast, where we separate real estate fact from fiction. I'm Rhys Bettle. In an every episode, we uncover the truth behind the property market's biggest claims and trends. Joining me is our resident expert, Lachlan Delahunty. He's seen it all and isn't afraid to call out the bullshit when he sees it. Welcome, Lachlan.
• 0:23
  Thanks, Rhys. New haircut, new podcast. Here we go again. All right. Let's jump into today's topic. And the statement reads, Labor versus Liberal, they can save the housing crisis.
• 0:36
  I think we should just give you a little bit of context in terms of this statement. This is regarding the upcoming election and some policies that both Liberal and Labor have pitched. So there is a fair bit of detail here today. So what I'll do is let's go through Liberal first and I'll just read out what are some of the policies that they've pitched.
• 0:56
  So the first one for Liberal, first home buyers, it targets first home buyers, I should say, and it's only new builds only. So no established property. So the scheme is purely for new builds. The big one here is deduct mortgage interest up to $650,000 from income tax. So similar to an investment property, but for your principal place.
• 1:18
  It is means tested. So what we mean by means tested is similar to what the government uses for eligibility. So a single applicant has to be earning $175,000 or less, couples $250,000 or less. So anyone over that wouldn't be eligible for this scheme.
• 1:37
  They must live in the home and the interest rate, sorry, the interest deduction applies for five years. So there's a fair bit in there. And this is purely for the income tax key points. Just to give an example, I guess, of that tax deduction on a 120K salary I looked up. Well, I looked up, it was on the Liberals' website. So you've got to hope it's true.
• 2:00
  You got to have to trust me in that. 120K salary with a 650K mortgage at say 6.1% would benefit 12K per year. Yeah, which is sizable. Pretty significant. So I guess on this key point, what's your thoughts on them just focusing on new builds rather than looking at the established market as well?
• 2:23
  Again, a very demand-heavy policy, and I think the issue with all policies on both sides of the fence, they're both very focused on trying to get voters, and to do that, they're trying to assist them get into the market. But in fact, this policy...
• 2:41
  We're in a housing crisis. We've got, again, the slowest turnaround times on newly constructed homes nationally. Obviously COVID brought that up upon and now they're looking at not only that, looking at cut migration, so skilled migrants are gonna come in and potentially help build these homes. So you're cutting a huge part of the labor force and then you're incentivizing, as we've seen in COVID, a new build construction, almost like the building incentives.
• 3:08
  looks like a little bit of a recipe for disaster. 650,000, if you look at a local market like Perth, there's a very small segment of the market that can benefit from that. It's really a regional type play, therefore there won't be a huge amount of take-up. Again, I think this policy is very much looking at headline noise more than actual reality, because where can you buy a house and land package in, say, Perth, Western Australia, for 650,000?
• 3:36
  In Elkermoss, they're going for $850,000 to $900,000. And what migrants are going to build it with the predicted parts they want on migration? Exactly. So I don't particularly love this policy. Again, I think it's very pro-demand. But when you look at it in reality, what sort of take-up could you have at $650,000? Again, it makes for great headlines in reality. Do you think that's more achievable? So let's say for $650,000 and establish close to inner city, you're not going to establish property.
• 4:06
  at 650 so that's going to be a redundant policy do you think a lot of the capping is around trying to push people on the outskirts of um major capital cities or it'll be micro lots becoming more popular and is necessary so again trying to get a different product type so you're not getting the six seven hundred square meters that's been reduced in the last decade here locally about 450 if you look at like hammond park estates baldovus estates it's now getting as low as 280 180 those
• 4:35
  $250,000, you're building on them for $350,000, $400,000, you're in it for that $6,600 to $6,500. But again, we're in a market, I think locally in Perth, where there is no allotments available. The biggest problem is developers turn around times on trying to get services to these allotments, get through government policy to allow for these subdivisions to...
• 4:57
  So again, I think on Labor's side, they'll look at trying to reduce some of those turnaround times. But again, it's head noise. There's no actual productive procedures that are actually going to fix this housing crisis.
• 5:11
  What about income? So we'll touch on Labor's stance in a minute, but Labor doesn't have any restrictions on income caps, which is a tick in the Labor's direction. Liberal, single applicant, under $175,000, couples at $250,000. Do you think they are going to help more people or do you think that those limits are going to cap a lot of people out of the market?
• 5:35
  Which specific policy? This is again off. So you're talking about... I'm just talking about income caps. So Liberal, they are capping... Yeah, 200 and what is it? 250 household, 175 single applicant. Do you see that being a restrictor?
• 5:48
  No, I think the biggest restrictor on this is up to 650K. You think what it's going to do to the market, and it's a big if, if the policy was to get into play, that segment of the market's going to rise and rise aggressively. It's going to be a huge take-up on it, and then all of a sudden that 650 becomes unattainable, which pushes the next generation of buyers, and I'm talking generation as in...
• 6:11
  you know 10 years I'm talking about 12 months time as we saw when when they try to build in these sort of building incentives through COVID.
• 6:19
  And I guess this part of the policy looks at supporting a cash flow perspective with the tax deductible repayments there. And I know we gave that example that Liberal website can save up to $12,000 per annum. One of the other key policies they've come out with, which has been a bit controversial with them talking over the last couple of months, was withdrawing up to $50,000 from their superannuation to purchase the first property.
• 6:45
  not this looks like it's for new build or established. So potentially, if you went down the new build route, you've got a cash flow reducing scheme with the interest deductible. And then you've also got a deposit where you can access from your superannuation. So from that side, it kind of ticks a couple of boxes. But what's your thoughts on... I prefer that, although it's... Accessing. Yeah, look, it's...
• 7:10
  There's very big debates at this at the moment. But actually, people don't understand that you need to, when you do sell that property, you've then got to replace that to your super. So it's not like you're riding that $50,000 off and going to buy a new car. It's going into a property. It's helping you access real estate that you couldn't do otherwise. So albeit the headline itself that we've seen during COVID when they gave us $23,000 access to...
• 7:37
  to super that people went out and bought new cars and did the wrong thing with it. That's not the intention of this policy. So I do like it. I think it, and the fact that it's not just restricted to new builds, because I think that's the problem with their initial policy is the fact that you're going to create more of a problem in an area of the market that's already struggling with labour shortages and the cost of materials. By opening up to established product, it's really going to help first home buyers get into the market and get into areas such as regional locations where,
• 8:05
  where the cost of building is astronomical. However, established product, because of the age of the product or potentially condition of the product, is far more affordable. So I think that's a more mature approach and albeit comes with a lot of criticism, people need to understand that $50,000 is savings. And if you look at the historical growth rates of the housing market, arguably a more secure investment than potentially the share market have we seen over the last six weeks.
• 8:33
  So I think it's mature in the fact that if they do sell, it's then replaced back to their super.
• 8:38
  Yeah, and they've launched a similar scheme in New Zealand and Canada as well, doing a little bit of light research on the- You have been reading up on New Zealand federal policy as you do in your spare time. As I do. I am half Kiwi, so I like to keep my finger on the pulse still. But yeah, they've had that policy for a little while now. Feedback overall has been positive. There has been a segment of the market where property prices went backwards and now they're- Rebounding on the fact of that?
• 9:07
  Correct. But it's like anything, I think there's gonna be some pros and cons with it. Regardless, and we'll keep going through, it's going to have both sides, and typically if you look at policies in the past, you'd argue that liberals being certainly more pro-property, that both sides of the fence in this equation have policies that I think inevitably will increase house prices. And they're trying to address it, that we're in a housing crisis, and their job is to help people get into the market
• 9:38
  That is partially correct, but what it's going to result in is increased prices. That's fascinating. In terms of just some of the other policies that they've kind of come out with, just to do with housing, this isn't a political podcast. Can be.
• 9:56
  It can be. I mean, look, we did the Trump one. We stuck to property on the Trump one. So let's stick to the property on this one. But a couple of other key points that I found that I thought were fascinating. We've already referenced it at the start. So it's pretty common knowledge to a lot of people who are staying in touch with the news. They plan to reduce migration by 25% over the next five years. This is liberal.
• 10:16
  that's the way they kind of see us freeing up 100,000 homes is reducing migration, whereas Labor's going on some planning approvals, which we'll touch on in a second. One of the other ones I thought was quite vague, and you're going to like this one because I love talking about this topic, and I'll do a bit of an explanation on what this topic is because I don't think we've addressed it on a previous podcast. They say, we will work with financial regulators to change lending rules to help young Australians access a mortgage. I'm assuming this means serviceability buffer,
• 10:44
  It's got to be the serviceability buffer. Which, for those playing at home, a serviceability buffer is an increase on the interest rate for affordability purposes that banks will put in their back end to help in an increasing rate environment. As we all know, we've gone in a massive increased rate environment. It does change as well, the serviceability buffer. What's it currently at the moment for those listening? 3% at the moment.
• 11:08
  And there's talks of that bringing that down to 2.5%. Correct. And they have moved it historically in the past as well. So for me, if we're coming out here with these aggressive comments from the Treasurer and all the banks are baking in their predictions saying we're going to be at least four base cuts, probably even more in the next sort of 12 months, you know...
• 11:27
  serviceability buffer is going to be key to helping out that serviceability. So, yeah, what I'm taking from that statement that the Liberal have said is they're going to look to reduce that serviceability buffer. It is – they haven't actually said it in plain text. Yeah, but if you read through it, that's exactly what they're talking about, right? And it's – I think that, again, is –
• 11:48
  a mature policy, we're in an environment now where the likelihood of rates going down is far more likely than them going up. At 3%, it's certainly overkill. So it's two and a half, it's arguably oversensitive. So it would assist certainly people get into the market, again, hitting the demand side. But if we were to see a falling interest rate environment, which we are about to enter, with another tweak to the serviceability buffer by, you know,
• 12:17
  50.5, it would put huge demand into the market. I am all for it. And they do this on remortgages already, and certain lenders do have some flexibility on it. So, yeah, I think to roll that out, especially to help first-time buyers, is going to be key from an affordability standpoint. Okay, let's touch on Labor's key policies as well. So just to give you some context for those listening or viewing at home,
• 12:40
  They have recently come out, a government's recently come out and removed HEX from bank servicing. So before the election, they've already come out to kind of help with it. Which people don't realise that has a huge impact on serviceability. You know, as you know, if anyone's going out there trying to get a loan, if you've got any credit card debts, it really cripples your serviceability. And they essentially see HEX debt as another extension of a...
• 13:05
  credit card debt. So straight away, it reduces your serviceability significantly. So I think that is a very mature thing to remove from their policy. So that's a positive already released. The big one that they've kind of coming in post-election is...
• 13:24
  They are coming out with a first homebuyer's scheme with a 5% deposit, so no lender's mortgage insurance. For those listening, lender's mortgage insurance is required when you have less than 20% deposit. It protects the lender against a financial loss if the borrower defaults. So that's why they have lender's mortgage insurance. There's no income caps on this scheme. So we mentioned, obviously, the means testing with Liberal.
• 13:49
  $175,000 and $250,000 for household income. So there's no caps for this one. It applies to all properties, so we're not restricted to these- New builds. New builds going out to these different estate areas. The government guarantees the rest of the deposit.
• 14:04
  And then we mentioned, obviously, with Liberal, their proposal to get more houses in the next few years is cut migration. Labor's pledging $10 billion to partner with state developers using government land and fast-tracking land release, upzoning and planning approval. So that feels like a big question that we'll unpack as well. So with no asset-type restrictions, will Labor's policy just increase the property prices?
• 14:30
  In theory, yes. You're going to drive up the bottom segment of the market, which is the first home buyer market. At the moment around Australia, a balanced market, you typically see a third, a third, a third. So a third of the market's own occupiers, a third of the market's investors, and a third of the market's first home buyers. This would increase that segment significantly, which again will make it difficult for those looking to buy in 12 or 24 months, because it's again hitting the demand side of the equation significantly.
• 15:00
  without addressing a supply solution. Yeah. So I guess that's property prices, but in terms of if we're looking at first-time buyer trying to enter the market, it feels...
• 15:10
  you know, black and white, this feels like a good policy to, you know, no restrictions on where they can buy. They can maybe get those. Yeah, it can be new. It can be established. Correct. And it's not, it's not, you're not capped on income. So, and for most people, the hardest thing to do is, A, stave up for a deposit. They're assisting on that, which is typically the biggest hurdle for a lot of people.
• 15:30
  Is fast-tracking, you know, those building approvals, is that a fugazi? It's an absolute joke. And again, I call bullshit on the I Call Bullshit podcast. These, again, just headline noise is what it is. They come out. There's no structure for this to actually take place.
• 15:49
  How broad is that? If you can read out the policy again, they're going to work with local partner groups to assist, essentially reduce the red tape, which they've been promising for the last five years and nothing takes place. Even if you look at the granny flat laws that were meant to reduce all the red tape to allow for second dwellings locally.
• 16:09
  It's just as hard now, it's almost hard to get a granny flat approved than it is a standard residential dwelling. So I call bullshit on that big time and certainly disregard that policy of any serious substance. Yeah. And it's interesting, both Liberal and Labor have come out pledging 100,000 homes. One's cutting migration and the other one is almost a policy that, I mean, you just said that you call bullshit on it. You don't see...
• 16:36
  it is more of a fugazi. The likelihood of them being able to do anything might be... They've also coincided they're going to build 1.2 million new homes in the next five years. Again, massive numbers with what's... Where's the strategy behind that? How are they actually going to achieve that? I think they're currently about 300,000 short, 300,000 homes short from the policy they put in place in 2023. So, again, throwing another half a million properties onto their target doesn't mean it's actually going to be delivered.
• 17:04
  And then you mentioned that, I actually didn't say it in my points, was the help to buy scheme with the 2%, I think, deposit. And I think it was important to kind of touch on that. I think they're looking at, it hasn't been approved yet, but they're looking at some amended figures for property prices because I think in terms of max property price of the scheme. The new threshold, yeah. The new threshold, that's what I'm looking at. Help to buy is a fascinating one.
• 17:29
  I was living in the UK for nine and a half years and that was a super popular scheme off the back of COVID. It ended with mixed reviews in terms of was that a success? Yes, it got a lot of people in the market, but it did drive property prices significantly. So I guess from your perspective. And the government takes a share in, essentially sharing the upside with the government. So the government doesn't miss out on its spoils on the way through, which again, needs to draw an income.
• 17:57
  we revert back, what are these policies actually going to do to the property market? So we're trying to solve a housing crisis. So both sides here, all talking about a housing crisis, it's probably the most topical thing, I believe, in their pitches over the last three weeks. We've seen both Labor and Liberal both target the housing crisis. But again, both focusing heavily on the demand side of the equation and...
• 18:25
  A lot of these policies, they're all gonna wrap up with the same conclusion, and it's gonna drive demand, it's gonna drive up housing prices, and it's gonna leave the next tier of buyers in 12 to 24 months unable to get into the market. And none of these policies are looking at a practical way to solve the supply side of the equation. And that's, you know. If you were the prime minister. Jeez, that's a thought.
• 18:54
  If you were the Prime Minister, yeah, I guess it's clear here, you're saying it's not fixing the demand issue. Supply is what we need to be focusing on. Absolutely. All these policies are just going to hit the price point, and it just means median house prices across Australia are going to rise.
• 19:12
  to help solve the housing crisis where people don't have a home to live or rent. We need to bring on more supply to do that. We do need migration. We need people with the right skills. The biggest problem was only until recently they weren't letting the labor in terms of just an average laborer from overseas wasn't on the skilled registered list. And that's exactly what we're in massive shortage, particularly locally here in Perth.
• 19:35
  So we need to look at that, where the Labor are going to come from. We need to look at the time for approval. They've broadly said they're going to look at trying to work with local council. They haven't officially said exactly what they're going to do. What does that actually look like? Like how are you actually going to cut red tape? Can we get some data sets on turnaround times from applications, like a development application to approval?
• 19:59
  building permit to approval. Let's get some tangible figures on the reduction in times for approval. Again, incentivizing supply, but not at the, and there's an argument that the Liberal have tried to do that, but not by driving up, again, labour prices or material prices through increasing demand significantly.
• 20:22
  So yeah, there's a lot that needs to be done. There's no clear centralised focus, I believe, from either side. And to be honest, I just don't think anyone knows the answer. I certainly don't have it. And I wouldn't be in this room doing this podcast with you if I did have the answer because I'd be advising the government. But I think there certainly needs to be a focus on this side of the equation.
• 20:41
  And I mean, the biggest one that no one's addressed, I mean, Liberal obviously were pro-negative gearing, but negative gearing is probably the most topical subject when it comes to the housing market. And I mean, Liberal's obviously pro-negative gearing. And then Labor came out the back end of last year that they're going to support negative gearing as well. Well, they lost an election six years ago. So that's why I believe they're so pro-property this time around. And negative gearing almost hasn't been talked about because they don't want to jeopardise an unlosable election by doing that again.
• 21:11
  Yeah. Okay, let's just do a quick summary then. So Liberal targets new builds and helps reduce your tax and boost your deposit with access to superannuation. Labor opens the door to more people, more properties and slashes upfront costs.
• 21:26
  both plan to give an excess of 100,000 new homes. Liberal wants to reduce migration. Labor plans to fast-track these government approvals. Fulgazi, Fulgazi. So, Lachlan, what's the verdict then? Labor versus Liberal. They can save the housing market. Fact or fiction, do you call bullshit?
• 21:44
  I call bullshit. Both are very demand focused, which is only going to increase in property prices, not help the average punter and the first-time buyer get into the market. We need to be looking at the supply side of the equation. Make sure to join us next episode. Stay informed, stay curious, and keep going up the pool.