With the election result now clear our property markets can resume their normal activities.
And while the ALP fiddled around the edges with some First Home Buyer incentives, the absence of significant macro policy differences between the new Labor Government and the Coalition suggests there will be minimal impact in the short term on our property markets.
However, I can see some unintended and concerning long-term consequences that could have a major effect on our economy and our property markets share this with you today in this episode of my podcast.
Regular listeners will know that I record a weekly Property Insiders video with Dr Andrew Wilson, Australia’s leading independent housing economist, and today’s podcast is the audio of a recent YouTube video as we discuss our economy, the latest unemployment figures, wages growth, what Reserve Bank feels about interest rates, and what our new government may mean for property.
What our new government means for property
Well, it looks like we’re going to have a Labor government for a number of terms now, considering the substantial defeat of the Liberal Party, so what will this mean for our property markets and homeownership.
We know the Labor Party backed down from the previously proposed changes to negative gearing, promising to maintain existing regimes for negative gearing and capital gains tax if it came into power.
And it promised to help 10,000 First Home Buyers get into the market with a shared equity scheme.
As well as pledging to build 30,000 new social and affordable housing properties over the next five years.
All these policies will increase demand and are not really addressing supply. Building 6,000 social and affordable homes a year is not enough.
What about Labor’s promised minimum wage increase
As part of its election promises the Labor Party undertook to deliver a minimum wage rise to match inflation.
While this is dependent on Fair Work Australia endorsing it, the outcome is very likely to occur and will deliver some benefits but also some challenges.
A great many skilled Australians have already enjoyed much higher incomes in the last year or so, but a large number of Australians are really struggling to make ends meet as the cost of living swamps their stagnant income.
Normally labour shortages boost wages, but this time around it hasn’t occurred, so extra money in ordinary Australians' pockets will mean they can spend more and grease the wheels of our economy.
While many enterprises will benefit from the extra consumer spending, some will need to increase their prices to help pay for the extra wages; and both these effects are inflationary.
The only anti-inflation weapon the Reserve Bank has is higher interest rates, which may rise further than the Reserve Bank currently plans if the wage rise boosts prices.
This is reminiscent of the 1970s when we had inflation, wages, and interest rate rise spiral that eventually led to the depression of the early 1980s.
Labour Market Flattens Over April
Australia can finally boast its lowest unemployment rate since 1974 after the unemployment rate dropped to 3.9 per cent in April.
Despite the still-declining unemployment rate, employment growth disappointed up to only 4,000 in April.
The low unemployment rate was influenced by a fall in the participation rate over April - down by 0.1%, with fewer people in work over the month.
The RBA has predicted that the unemployment rate would fall to 3.5% by early next year with strong competition for workers placing significant upward pressure on wages.
The latest March quarter ABS Wage Index however was clearly disappointing, reporting another modest result and with a record fall in real wages - despite near record-low jobless rates recorded this year so far.
The prospect of a flattening labour market, steep declines in real wages, and the impost of higher interest rates on the economy may have the RBA rethinking its current rate strategy.
Links and Resources:
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