How Does Labour Winning The Election Impact Property Investors? 

What do the election results mean for property investors in Australia under the Labour Party’s agenda? This question is crucial for anyone seeking clarity on how political shifts could affect property markets, investment strategies, and the associated risks of investing in a property.  

The Australian Labour Party (ALP) has unveiled policies with a strong focus on boosting housing supply, supporting first-home buyers, and incentivising construction trades, all of which have direct and indirect consequences for property investors. This report offers a detailed examination of the ALP’s proposals, their potential impact on property investment, and critical risks that investors should contemplate. 

The ALP’s Housing Supply and First Home Buyer Initiatives 

The Labour Party’s housing agenda focuses on expanding housing supply with particular emphasis on first-home buyers. The Homes for Australia plan aims to build an additional 100,000 homes targeted at this demographic, complemented by a $54 million boost to prefabricated and modular home construction. This approach contrasts with traditional market-driven supply models by involving government-led initiatives to increase housing stock. 

The policy to allow first-home buyers to purchase properties with just a five per cent deposit, without the need for lenders mortgage insurance (LMI), represents a significant facilitation of entry to the property market. The government guarantees a portion of the loan under this scheme, potentially enabling buyers – especially from immigrant or less affluent backgrounds – to overcome the ‘deposit hurdle’. According to Albanese, this will save first-home buyers approximately $23,000 on average by eliminating LMI costs. 

For property investors, increased supply, especially in the affordable housing sector and high-density developments, may exert downward pressure on rental yields and capital growth in certain market segments. The focus on high-rise developments and smaller footprint properties signals a shift in housing typologies that investors need to monitor closely.  

The ALP also commits $1.5 billion to infrastructure improvements such as roads and utilities, which would accelerate construction timelines. This acceleration could improve the feasibility of new developments and reduce holding costs for investors engaged in development projects or land banking. 

Tax Deductions and Investment Incentives: The Build-to-Rent Program 

The ALP’s build-to-rent program offers tax breaks to investors, projected to deliver approximately 80,000 new rental units over the next decade. This policy is designed to encourage investment in a long-term rental property, which constitute a significantly larger segment of the Australian housing market compared to short-term rentals. While owner-occupied dwellings remain the predominant housing tenure, long-term rentals play an important role in meeting rental demand across the country. 

Tax incentives under this program may include accelerated depreciation and interest expense deductions, improving the after-tax returns for participants. Such incentives could shift investor preferences towards build-to-rent projects, potentially affecting the traditional buy-to-let market. This might lead to a concentration of rental properties under institutional ownership, influencing rental market dynamics and tenant protections. 

Investors contemplating renovations should note that the ALP has not explicitly indicated changes to renovation related tax deductions. However, increased scrutiny of tax benefits for property investors has been a recurring theme in political discourse, suggesting that investors should remain vigilant about potential future reforms. 

Investor Risks to Consider: 

• Potential shifts in rental market structure due to institutional investment. 

• Possible future tightening of renovation-related tax deductions. 

• Reliance on government incentives that could change with political dynamics. 

The Critical Risk of Construction and Skilled Labour Shortages

A significant challenge highlighted in the ALP’s policy documents is the shortage of skilled tradespeople, which affects construction timelines, costs, and ultimately the feasibility of property development projects. The government offers $10,000 cash bonuses to apprentices and $5,000 incentives to employers, alongside concessional loans for tradespeople, aiming to boost workforce supply. 

However, insights into immigration policy suggests that delays continue in bringing skilled construction workers into Australia. The current visa system excludes many construction trades from streamlined processing, creating bottlenecks. Sonia Le-Heggart of Absolute Immigration reports employer frustrations due to months-long delays in approvals, which hampers project scheduling and drives up costs. 

For property investors, these labour shortages represent a critical risk, increasing the likelihood of cost overruns and project delays. The resulting supply constraints can exacerbate price volatility in property markets. Investors engaged in development or renovation projects must factor these uncertainties into their risk assessments and contingency planning. 

Market Dynamics: Price Pressures and Demand Drivers 

The ALP’s policies will likely influence property market dynamics through the interaction of supply incentives and demand-side support. The Help to Buy scheme, with an $800 million commitment, raises property price and income caps, allowing more buyers to access government equity contributions of up to 40 per cent. Combined with the Home Guarantee Scheme, this enhances purchasing power for eligible buyers. 

Statistical Context: 

According to the Australian Bureau of Statistics (ABS), national dwelling approvals have been sluggish, partly due to labour shortages and regulatory delays. 

The Reserve Bank of Australia’s recent reports indicate that housing market activity remains sensitive to supply constraints, with price growth concentrated in limited regions. 

Statements from Key Candidates and Political Context 

Labour leader Anthony Albanese emphasised the government’s commitment to removing barriers for first-home buyers, highlighting the five per cent deposit scheme as a transformative measure. “You won’t have to pay a single dollar in mortgage insurance, our government will cover it,” Albanese stated in his social media account, emphasising affordability gains for new buyers. 

Opposition leader Peter Dutton acknowledged the need for more tradespeople, promising to increase skilled migration in the construction sector, albeit without detailed figures. Labour’s approach contrasts with the Coalition’s more cautious stance on migration levels, which has implications for labour availability and construction capacity. 

Labour Party focuses on increasing housing supply and supporting first-home buyers but caution that without addressing land availability and construction capacity, price and supply issues may persist. 

Property Investment Strategies 

The intersection of political policy, financial incentives, and labour market dynamics illustrates the complex environment property investors must navigate. While finance-focused incentives improve short-term affordability and investment returns, political decisions on immigration and infrastructure directly shape supply-side realities. The health of the construction workforce also ties into broader societal and economic trends, such as migration policy and vocational training. 

Potential Changes on the Horizon 

In the period preceding the recent federal election, the Australian Labor Party had previously contemplated policy changes including the removal of negative gearing and the 50% capital gains tax (CGT) discount. However, these proposals did not progress significantly through the legislative process. The government has also previously discussed a controversial measure targeting the taxation of unrealised capital gains within superannuation accounts. This potential policy mandated that Australians would be liable for tax on gains accrued from assets held in their superannuation funds – such as property and farmland – even if those gains had not been realised through sale or disposal.  

Collectively, these potential policy changes could lead to a decrease in property investment, a contraction in the rental market, and increased financial pressure on investors, particularly those relying on property assets for retirement planning. However, it is important to note that these reforms remain speculative and may not be implemented. 

Summary of Key Findings 

Key Takeaways 

• Increasing the supply of affordable, high-density housing in Australia may help mitigate the rapid rise in rental prices. 

• Incentives for first-home buyers can boost demand but may also lead to higher property prices if housing supply does not keep pace. 

• Investments in infrastructure are expected to enhance development processes, benefiting property developers significantly. 

• Property investment is a long-term strategy; post-elections may introduce short-term uncertainty, but sound investment principles are crucial for success. 

• Proposed tax reforms could significantly reduce the appeal and viability of property investment by increasing tax burdens and creating cash flow challenges. 

• Consider your election strategy and how to adapt your property investment approach considering recent election outcomes. 

• Consulting with a qualified financial professional is recommended to assess how the election results may impact your investment portfolio.