With the 2022 Federal election looming, we thought it timely to write a blog on how elections, and in particular the results from elections, can impact the property market.
Elections, and the policies of the parties who contest them, can create uncertainty, opportunity, advantages, disadvantages and more in the property market. They can impact tenants, owner occupiers and investors in various ways.
In this blog, we will briefly explore a number of areas that have historically (and will foreseeably) impacted the property industry. Bear in mind we are not expert political analysts, nor are we economists, so this simply represents our humble opinions from our direct observations from our experience working in the property industry over time.
Indecision From Buyers / Market Sentiment
One of the most common things we see around election time is uncertainty from buyers. This is understandable from a number of perspectives. From a very broad perspective, elections inevitably create a degree of uncertainty for us all, as we simply can’t be sure which party will form government. This is not a feeling of uncertainty related to a specific economic policy, or a belief that one party over another will do a better job of managing the economy (though those both create their own concerns and feelings of uncertainty). It is simply the more vague and intangible feeling of uncertainty that comes from not knowing what the outcome will be for an important event.
Naturally, there are also more tangible concerns, such as those related to the economic policies of different parties, noting that different policies will impact different buyers / segments of the market. We also all hold our own political beliefs and alignments, so the prospects of a successful election outcome for your preferred party may be somewhat uncertain. Let’s face it, that is more often than not, and as a result that leaves us with a lack of certainty.
No matter the reason for the uncertainty, it directly impacts the confidence for buyers and tenants to act decisively and quickly. As this impact is so broad, it can temporarily slow the volume and pace of transactions, which in turn can have a short-term impact on values. This is usually short-lived with demand and values rebalancing post-election.
Pressure On Interest Rates
All political parties aspiring to form government claim that, if they are elected, they will provide lower interest rates and a more stable economy. Just ask them. Of course, history is always the best judge on how well a political party has managed the economy and what impact that has had on interest rates and general affordability in our daily lives.
As economic policies have to cover such a broad range of issues, we are not going to do an in-depth analysis of them and what the effect is on interest rates. It’s safe to say that the policies collectively impact how well our economy performs, and that has a large bearing on whether interest rates move up or down or remain stable.
Right now, we have an excellent example of this. The way our government has handled the Covid-19 pandemic is having a very real impact on our economy right now. The lengthy, onerous lock-downs had a severe impact on businesses (and individuals), so the answer the government came up with was to print and pump vast sums of cash into the economy. They call this “quantitative easing” and while it offers an attractive short-term solution, the downside is that all that new money in the economy inevitably leads to inflation. With the
latest CPI (Consumer Price Index) figures showing a national increase of-5.1%, we are at the highest level of inflation since the G. F. C (Global Financial Crisis), which were also accompanied by quantitative easing.
This inflation creates huge pressure for the RBA (Reserve Bank of Australia) to lift the official cash rate to help slow increasing inflation. It naturally follows that as interest rates increase, the affordability of property for buyers reduces (if you’re paying higher interest rates, the bank will not lend you as much money) and buyer demand reduces along with it, which can then negatively impact property values.
Incentives Offered By Political Parties
A common ploy from political parties is to make promises to specific segments of the voting public to entice their vote. Housing affordability is a very common issue that is targeted by political parties with the promise to introduce policies that will create more opportunities for new home buyers to enter the market, amongst other claims to appeal to as many voters as possible.
While not all promises for such policies are kept once that party forms government, we do often see new schemes and policies introduced to stimulate certain segments of the market, such as construction of new homes. These schemes often encourage new buyers into the market, so this added demand often results in a more buoyant property market and increasing values.
While this usually targets the residential property market, it still has a flow on effect for the commercial property market for a number of reasons. The broadest reason is that it impacts market confidence. When the residential market is strong, buyer sentiment is strong and that flows on to the commercial property market. Another common reason, and something we’ve seen bear out in the past two (2) years is that with the growth of the residential market, investors look to the commercial market for more affordable investment opportunities, which builds demand and therefore values can increase at a faster pace.
Impact From Political Policies
In the current election campaign, we have seen a very specific ploy from the United Australia Party (UAP) to target a wide audience of potential voters. They are pledging that if they are elected to government, they will implement a maximum interest rate of 3% on home loans for the next five years to “save Australian homeownership”. They claim that “Liberal and Labor’s trillion dollars of debt ($1,000,000,000,000 – a million million) will increase home loan rates to 4% in two years and to over 6% in three years”.
They also claim that “at 4%, over 60% of Australians will default on their mortgages and will lose their homes” and “at 6% or more over 80% of Australians will lose their homes”. They go on to make some sensational claims about how this will collapse the market, which might be categorised as ‘scaremongering’, but what political party doesn’t engage in that behaviour?!
While it may not be likely for UAP to form government, at least from an historical perspective, it is a good example of a political policy that would have the power to impact the property market broadly.
While none of us have a crystal ball into which we can gaze and determine who will win the 2022 election, we can be sure that life will continue and we will all have to carry on under whichever party forms government. This will at least resolve the general feeling of uncertainty and will allow us all to move forward with a greater degree of certainty in business and in life.
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