In a move expected to push mortgage rates lower and lead to an upturn in the housing market, New Zealand yesterday reduced its cash rate to 1.5%, listing slowing domestic growth, softening house prices and stagnating household spending as contributing factors.
While each of these elements is also evidenced in the Australian economy, HIA senior economist Geordan Murray is convinced that Australia is in need of more than just a rate cut.
He explained, “Had the RBA lowered rates, it may have eased some of the pressures in the housing market, but the acceleration in the downturn in building activity during 2018 was largely due to regulatory imposts from state and federal governments.”
According to Murray, the market downturn occurred even with “relatively stable” lending rates, highlighting the need for intentional government action to make home ownership more accessible.
“This includes reviewing the appropriateness of assessing loan serviceability against an interest rate of 7%, almost double the current market rate. Reversal of the punitive rates of stamp duty on foreign investors is also overdue,” he added.
Without governmental support, Murray worries that the market will continue to flounder.
“Any measures that increase the tax burden on homes, such as an increase in capital gains tax, would cause a further contraction in the market and exacerbate employment losses,” said Murray.
Others in the industry agree with this assessment.
The Real Estate Institute of Australia (REIA) has been waging a public awareness campaign against the proposed changes to the capital gains tax, as well as Labor’s negative gearing proposition.
According to REIA president Adrian Kelly, the move was intended to bring attention to the measures’ “adverse economic impacts, impact on mum and dad investors, retirement nest eggs, home owners, renters, the construction industry, as well as the state and federal governments.”