There’s no question that the Liberal party’s latest leadership spill was a turbulent moment in Australian politics.  But three weeks on, it seems like the dust has finally settled, with Scott Morrison emerging as our new Prime Minister.

As the former Treasurer and member of the Property Council of Australia, Morrison surely has some experience and opinions when it comes to the housing market, and many are curious as to what his stance will mean for buyers, sellers and investors. In saying this, his leadership could be short-lived.

Malcolm Turnbull’s former Wentworth seat is currently dangling by a thread, which may spell the end for a Liberal majority, and with Labor heading the polls in the two-party preferred measure, a Bill Shorten led Labor government is looming.

It’s no news that the housing market has been softening for a while now, with no recovery predicted in the foreseeable short-term future. Nevertheless, some believe that prices are still inflated and could yet take a turn for the worse.

With a slumped Australian dollar, investors are looking to see how the big four banks, as well as the Reserve Bank of Australia, will react. Despite the current market, prices remain challenging for first home buyers, especially in Sydney and Melbourne, and Labor’s chatter of winding back tax concessions has people talking.

So what is our new Prime Minister’s take on these issues?

Will Morrison be the man to winch the housing market out of its current ditch? Or does he support a bit of slow down? And how would policies change under a Labor led government?

First, let’s take a look at the new Prime Minister’s resume.

Morrison served the Property Council of Australia as a national policy and research manager from 1989 to 1995, his first job out of university. On one particular occasion, he marched out of the office and purchased a set of weighing scales – not for himself, but to weigh the accumulated and duplicated planning laws across federal, state and territory legislation; the total, 28 kilograms. The gesture, although symbolic, got people talking and showed that the young Morrison, although frustrated with the stack of ‘red tape’, had a unique capacity to communicate ideas.

In 2008, Morrison was appointed Shadow Minister for housing and local government and soon progressed to the cabinet under Tony Abbott’s leadership, before stepping up to Treasurer under Malcolm Turnbull.

Policy and perspectives on tax concessions – how do Labor and Liberal differ?

Since Morrison received his position as Treasurer, the Liberal Party’s policies around housing affordability have centred around increasing supply through working with state and territory governments to assist with planning reform as well as supply targets.

One initiative that Morrison oversaw was the introduction of a bond aggregator for social housing, the National Housing Finance and Investment Corporation, which was aimed at sourcing lower interest loans from the bond market to fund affordable and community housing developments.

Another policy measure underway is the reform of the National Affordable Housing Agreement, which will be replaced with a new set of agreements that requires delivery on housing supply targets. Also in the pipelines is a $1 billion National Housing Infrastructure Facility, which plans to help local governments fund the high costs of building infrastructure.

The Liberal party has offered support to owner-occupiers by allowing first home buyers extract more of their superannuation towards the purchase of property, as well as charging foreign investors $5,000 annually if a house is not occupied within the first 6 months of ownership. The Liberal party has also stated that they plan to support investors who rent to tenants receiving welfare, by enabling direct deductions, whilst also increasing the capital gains tax (CGT) to 60 per cent for those invested in affordable housing.

The Labor Party’s policies around housing affordability differ in that they plan to tackle tax concessions, which they believe are favouring investors and locking owner-occupiers and new buyers out of the market – a mantra they have held since the lead up to the 2016 election.

The Labor party also believes that in particular, negative gearing and capital gains discounts have not achieved an increase in housing supply and have cost the budget over $10 billion annually – an amount that’s more than the government’s budget on higher education or childcare, and a figure that’s been growing at 8% per annum.

The Labor Party believe abolishing negative gearing on all but newly constructed properties and halving CGT concessions could save the government $31 billion over three years. Apart from the savings, they believe these measures will also ease the pressure from Australia’s hottest property markets, while also levelling the playing field between investors with multi-property portfolios and owner-occupiers/first home buyers.

Labor is also of the opinion that these concessions mostly benefit high-income earners, with the top 10 percent of households receiving 70 percent of the negative gearing benefits and the top 20 per cent receiving half of all capital gains benefits. Another concern is an interaction effect, between these concessions, where an investor can benefit from tax breaks over the course of the ownership, and then access another concession at the point of sale, encouraging speculative behaviour.

The Henry Review, from Financial System Review and the Grattan Institute states:

“The tax treatment of investor housing, in particular, tends to encourage leveraged and speculative investment in housing” and “Reducing these concessions would lead to a more efficient allocation of funding in the economy,” – Financial System Review, Box 3: Major Tax distortions, page 22 of Overview.

The Prime Minister recently spoke about Labor’s policy of winding back negative gearing, deemed the measures a “Clint Eastwood approach” saying they would potentially spell “danger, danger, danger.” He stated that Labor’s measurements were “growth destroying” and “price destroying”, with the potential of causing house prices to fall drastically, stagnating the market and discouraging investors. Other Coalition officials have repeated this sentiment, stating the “chainsaw” and “axe” measures would cause a “shuddering halt” in the economy.

Despite the doomsaying, documents received by the ABC in January highlighted that treasury advisors in 2016 painted a different picture to Morrison and that “Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors.”

With the shadow treasurer, Chris Bowen noting: “All these claims were a lie, and Treasury analysis showed that, and the Treasurer was aware of it.”

Kelly O’Dwyer, the Minister for Revenue and Financial Services, responded highlighting that in an already slumped market, winding back these concessions would prove even more disastrous, “What on earth does Bill Shorten think slashing house prices would do by such a significant amount at this point in the cycle? What would it do to confidence, consumer spending, growth and employment?”

The Grattan Institute recently published a report with findings showing that phasing out negative gearing over a decade and halving capital gains concessions would cause a 2% drop on house prices. Regardless of the effect of winding back these concessions, it will be a hotly contested topic that will no doubt be in the public mind as the next election looms. For now, it seems those waiting for larger scale changes to housing policy may be waiting for a little while longer.

A lighter touch to the thawing market

As the Prime Minister has repeated time and time again over his career, he believes in a non-intrusive, lighter touch to adjusting the market. Earlier this year he made his support clear of APRA’s macroprudential controls in regulating the property market, proclaiming a “scalpel rather than a sledgehammer approach” was the best course of action.

He advocated the “malleability” of macro controls that APRA placed on lending measures offered by banks, such as caps on interest-only loans, and credit growth speeds, as opposed to the more intrusive methods proposed by Labor. APRA has since removed its cap of 10 per cent on investor loan growth and allowed banks to set internal limits, demonstrating the named malleability of these measures.

Despite an unwillingness to introduce policies that will significantly reform the housing market, Morrison has said that the macro measures implemented by APRA have been welcomed, as it has removed “runaway prices” in some of the country’s most expensive markets – namely, Sydney and Melbourne. “This is a softening of the housing market that in many respects is welcome, particularly if you are a first-home buyer,” stated Morrison.

His comments come as the percentage of home loans awarded to first-home buyers has risen above the long-term average of 17 per cent, which has accompanied an increase in owner-occupier loans compared to investors (4 times the rate).

Morrison claims that the thawing of the market is not a sign of falling consumer confidence but that the “careful, calibrated steps,” taken have allowed for a “soft landing in the housing market,“ and a “much more stable place for the housing markets to move.”

Morrison claims that the thawing of the market is not a sign of falling consumer confidence but that the “careful, calibrated steps,” taken have allowed for a “soft landing in the housing market,“ and a “much more stable place for the housing markets to move.”

Recent findings by CoreLogic have shown that the national average house price fell by 1.6 per cent over the last year, with Sydney median values falling 5.4 per cent and Melbourne 0.5 per cent. However, a slight rise was still recorded in Brisbane, Adelaide, Hobart and Canberra.

As housing prices continue to fall, the Australian dollar has experienced an even more dramatic drop over a longer period, which most experts claim has been prompted by extended periods of low interest rates and dwindling commodity prices.

Low interest rates have encouraged property investors, local and abroad, to purchase properties, as well as ensuring Australian exports are competitive. In addition to this, a weak dollar also encourages people with foreign currency to invest. Some of which would include tourists, migrants, foreign investors and even expats returning home.

Despite this, if the dollar drops too low it can mean risky business, especially if it continues to slide and leave investors stuck with a problem currency. A weaker dollar that falls for an extended period will mean that imported goods cost more, eventuating in inflation. This, combined with global interest rates rising, may compel the Reserve Bank to consider raising interest rates. Yet, the RBA has held the official cash rate at a record low of 1.5 per cent for an also record streak of almost 2 years, and most believe it is safe for at least a little while longer.

The big four banks have recently faced mounting pressure to raise interest rates as a result of smaller banks already raising their lending rates, which is largely a response to global rates, particularly in the US, pushing higher. Among the banks who have increased rates is AMP, which has raised new variable interest loans by 0.4 per cent, IMB which has risen their rates 0.08 per cent for new and existing mortgages, and Bank of Queensland which has pushed rates on loans up 0.15 percent and 0.08 percent for owner-occupiers.

Property investors and owners with mortgages with the big four have well-founded concerns that their rates may also rise. Westpac bank has increased interest rates on its home loan policy by 0.14 percent, starting from September 19. This means a family with a $500,000 loan will have to fork out an extra $516 on interest each year. In a recent response to this, Morrison has recognised the consequences rate hikes may have on property owners and that banks need to “justify in this environment, when people are really feeling it, why they believe they need to clip that ticket a little harder.”

However, the fix may not be as easy as Morrison claims, with many experts predicting that NAB, Commonwealth and ANZ will follow suit within weeks. In a June interview with Business Insider, Morrison reassured investors on the prospective interest rate hikes, stating: “What would be the risks of the banks [raising rates]? One of the really positive features of the Australian housing finance market is the fact that we have an insulation.”

He claimed that homeowners in Australia possess a safety buffer, “about, on average, two and a half years ahead of payments on mortgages and that’s how people have largely been significantly saving. As the rates fell, they kept paying at the same rate, built up their balances, and so they’re a few years ahead, on average.”

When questioned if he thought that falling prices and the prospect of higher interest rates spelled trouble for the housing market, that some still believe is a financial bubble yet to deflate, Morrison assured that the issue was largely of supply and demand, “Population is not going backwards…, prices are real, they are not the result of some sort of financial bubble, …I’ve never thought it was.”

Morrison has remained positive about the way the market is correcting and believes that APRA’s light touch over the last few years has done enough to defuse prices to a value he does not believe to be over speculative, with strong population growth still providing hope.

In a speech in New York last year,  he stated, “Australian housing values, while high, are still real. ‘Safe as houses’ still broadly means something in Australia.”

Despite Morrison’s optimism, there are those that think more could be done to stabilise the market and to give more opportunities to local owner-occupiers and first-home buyers. With a turbulent market and values still high in major cities, voters will soon have a big decision to make for the future of the Australian housing market come an imminent early election.