Ascientials Update August 2023
In this edition
Negative gearing. Will Fed Labour dump it?
Perth leading property price recovery
Amazingly accurate economy prediction chart
Affordability Update: The Big 4 Capitals
Will Federal Labour dump it?
For decades, Asciential Property Group has been advocating new property as the best property type for investment for a range of reasons including the national need to add to the housing supply. It's a relief to see federal governments of both persuasions finally making some intelligent, national interest, decisions about property investment.
In a speech a couple of months ago Prime Minister Albanese ruled out changes to negative gearing in this term of government. However, with Julia Gillard's now infamous 2010 election promise that "there'll be no carbon tax under any government that I lead" still in the memory of Australians, it's clear that Prime Ministers have been known to break their promises.
So what is the likelihood of the labour government reneging on its word on the well worn labour negative gearing chestnut?
Many of us still remember when Paul Keating (Fed Treasurer 1983-1991) changed the negative gearing rules in 1985 and abolished negative gearing, but was forced to reinstate it in 1987. According to the last ABS Census, there were over 10.8 million private dwellings in Australia of which 3.2 million are rented. The national average people per household stands at 2.5 - which means that privately owned rental property in Australia houses some 8.3 million Australians. The government has no hope of housing that many people in government housing - which is what they'd have to do if investors discontinued investment in property because it lacked sufficient financial advantage. The backlash to Treasure Keating's abolition of negative gearing in 1985 was huge, and would happen again if negative gearing was abolished.
Political backlash notwithstanding, this piece by the Property Council of Australia provides compelling, current, reasons that doing so would be political suicide.
Where to from here?
Australia is desperately short of housing accommodation and, while abolishing negative gearing wasn't a great idea for the reasons outlined above, reinstating it did little to improve the supply of housing in Australia. As late as 2016 just 7% of investment finance went to new homes.
By far the most effective change to gearing tax policy was introduced by the Morrison government in the 2017 budget when they abolished depreciation for plant and equipment not actually purchased new by that owner. That change helped... but not enough.
The current proposal by Labour to limit negative gearing to new housing only (from a yet to be determined date after the next federal election) is arguably the best policy change to support an increase to housing supply ever proposed - and vindicates Asciential's view that new housing is the answer for investors.
Perth leading property price recovery
Asciential's expertise in identifying growth markets continues to be borne out by research houses and media reports - albeit well after growth has commenced. This article from The Urban Developer is a good example. Research by PropTrack shows that Perth is leading the country in growth - with an another 4-7% expected by end of year.
For those that remember our May Newsletter article on where interest rates are heading, I note that PropTrack are also now reporting "...the cash rate was nearing the peak of the rate hiking cycle."
Amazingly accurate economy predictions chart
For those of you as yet unacquainted with him, Michael Matusik is my favourite property commentator. No drivel. Just unbiased, fact based, observation and opinion.
Michael's Missive on 16 May* contained a fascinating "Periods When To Make Money" chart by George Tritch who studied financial cycles. Samuel Benner published the chart in 1875 and, as Michael points out, the chart has been amazingly accurate. It accurately predicted the Great Depression, WW2, the dot com bubble and the Covid crash.
There's even been some research done on it. If you're keen on knowing the detail, you can read it here.
Result? 2023 is apparently a good time to buy.
*Scroll down until you see the image of "Periods When to Make Money" and read Michael's notes on it.
Housing Affordability Update The Big 4 Capitals
Time for a quick update on where each of the big 4 capitals sit in relation to the supply and demand equation. Understanding the supply and demand equation at a state level provides valuable insight into the ability of a state's property market to be in growth.
As a reminder, for a market to be capable of growth we need to see strong affordability (36% of gross household or less), low supply (3.5% or less), strong population growth (preferably over 1%).
Table 1 shows the key growth components for each of the big 4 capitals. The colours are indicative and correlate with the Asciential Property Clock down below.
Red = likelihood of zero or negative growth
Orange = not ideal for growth
Green = ideal conditions for growth.
The Asciential Property Clock