The Australian property market is gearing up for quite a ride as we head toward the May federal election and what looks to be a game-changing RBA meeting. We're seeing all the ingredients for a property boom coming together – aggressive interest rate cuts mixed with ambitious housing policies from both sides of politics.
Markets are now pricing a 79% probability of a hefty 50bps rate cut in May, while both major parties have put forward policies that analysts believe will push property prices up by as much as 15%. With first-home buyer incentives flowing and our ongoing housing shortage showing no signs of easing, savvy investors are spotting opportunities despite the recent cooling in auction clearance rates.
“Regardless of the outcome of the election, we are going to see a huge property price stimulus, and it’s easy to imagine policy changes — like negative gearing concessions for owner-occupiers — driving price increases of $200,000 to $300,000, purely based on improved borrowing capacity,” advises Godfrey Dinh, CEO of Futurerent. “We're seeing a rare alignment of factors that typically drive substantial price growth — improved borrowing capacity from rate cuts combined with expanded first-home buyer access will create ripple effects throughout the entire property market.”
Key Highlights
- Markets are pricing a 79% probability of a 50bps RBA rate cut in May
- Leading housing analysts forecast property prices to rise 8-15% following implementation of either major party's housing policies
- National vacancy rates have tightened to just 1.6%, with rental listings 22.1% below historical averages
- Housing production remains 20% below required levels, with new home starts declining 4.4% in December quarter 2024
- Labor expanding price caps for eligible properties to $1.3 million in Sydney and $1 million in Brisbane, while removing income thresholds
- Coalition proposing mortgage interest tax deductibility that could save high-income earners up to $18,992 annually
May Rate Cut Now a Certainty as Global Trade War Escalates
In a dramatic shift that will significantly impact Australia's property market, major banks and financial markets now agree that a Reserve Bank of Australia (RBA) rate cut on May 20 is virtually guaranteed, with mounting expectations of an aggressive 50 basis point reduction.
Despite the RBA holding the cash rate at 4.1% in its April meeting, Australia's biggest banks and the ASX rate tracker aligned within just 48 hours of that decision, with economists now agreeing that global economic conditions have changed so dramatically that a May rate cut is a certainty.
The ASX rate tracker initially swung to a 51% expectation of a cut to 3.6% on April 3, the day after US President Donald Trump triggered a worldwide trade war by raising tariffs. This expectation has since climbed dramatically, reaching 100% in the days following and now hovering around 79%.
NAB has become the only major bank explicitly forecasting a double cut in May (to 3.60%), citing the need to "catch up" due to restrictive policy and global headwinds. Meanwhile, Commonwealth Bank has warned that world trade risks have escalated to the point where a 50 basis point cut is now a serious possibility.
"It has felt longer than two weeks since the April RBA Board Meeting," noted CBA in an economics statement. "The US trade war has escalated, financial markets have been extremely volatile and global growth fears have become more than a tail risk. Financial markets are pricing in more rate cuts locally with the chance of a 50bp rate cut priced in for May."
This accelerated rate-cutting cycle, combined with the housing policies announced by both major parties ahead of the May 3 federal election, is creating a perfect storm of conditions that analysts believe will significantly boost property prices in the coming year.
"Savy investors are moving now, ahead of the May rate cut and election outcome," notes Godfrey Dinh, CEO of Futurerent. "The window of opportunity is narrowing as we approach what could be the most significant period of property market stimulus we've seen in years."
Housing Policies Expected to Drive Significant Price Growth
One of Australia's leading housing analysts has forecast prices will rise as much as 15% under the home ownership policies of both Labor and the Coalition.
"They're both inflationary. You need to model this stuff up but for a finger-into-the-wind guess, you would see prices rise 8-15 per cent, 12 months after the policies were enacted," SQM Research managing director Louis Christopher told The Australian Financial Review.
Economists are pointing out that neither side's policies would meaningfully boost supply while both packages would increase housing demand – a combination that historically leads to price appreciation.
Dan White, the head of Ray White Group, Australia's largest real estate agency, offered a clear analysis of the potential impact: "The Labor policy is far more broad-based. It will impact prices more. The Coalition policies only apply to new stock. New stock is only a fraction of the overall market."
Oxford Economics Australia's lead economist, Maree Kilroy, warned of a "sugar hit" from Coalition policies that would combine several first-home buyer incentives including:
- The existing home guarantee scheme for buyers with a 5% deposit
- The newly announced tax deductibility of mortgage interest payments
- The ability to withdraw up to $50,000 from super funds for housing
- Potential reduction on the mortgage serviceability buffer
"When combined, the earmarked policy suite revealed by the Coalition is very generous," Kilroy said. "Taken together, [they] are an enormous sugar hit that will turbocharge demand from first home buyers for new dwellings."
Key Policy Differences Between Labor and Coalition
Both major parties have announced substantial policies aimed at increasing homeownership, particularly for first-home buyers:
Labor's Key Housing Policies:
- $10 billion over eight years to build 100,000 homes exclusively for first-home buyers
- Expansion of the home guarantee scheme, guaranteeing 15% of the purchase price for all first-home buyers
- Removal of the existing $125,000 income threshold for eligibility
- Continuation of the shared equity scheme where the government will co-buy properties with individuals
- Increased price caps for properties eligible under the scheme in Sydney from $950,000 to $1.3 million; in Brisbane from $700,000 to $1 million; in Melbourne from $850,000 to $950,000; in Perth from $600,000 to $850,000; and in Adelaide from $600,000 to $900,000
- A $2 billion Housing Support Program for essential infrastructure
- $54 million for prefabricated and modular home construction
Coalition's Key Housing Policies:
- Tax deductibility for mortgage interest on loans up to $650,000 for first-home buyers
- Increased income caps for the home guarantee scheme from $125,000 to $175,000 for singles and from $200,000 to $250,000 for couples
- Removal of caps on the number of places under the scheme
- Access to up to $50,000 from superannuation for first-home buyers
- Potential reduction in the APRA loan serviceability buffer from 3% to 2.5%, which according to NAB modelling would increase borrowing capacity for a person earning $125,000 with $5,000 in credit card debt from $587,000 to $613,000
- A $5 billion investment to unlock 500,000 new homes through infrastructure funding
Who Benefits Most From Each Party's Policies?
The different approaches by each party will benefit different segments of the market:
Coalition policies will favor higher-income earners who can already qualify for home loans but can now borrow more due to the tax break. For individuals in the 30% tax bracket, the maximum deduction they could receive from the mortgage interest deductibility is about $12,000 per year or $60,000 over five years, based on a variable mortgage interest rate of 6.1%. The benefits are even greater for higher income earners - a household with one worker earning $250,000 on a 47% marginal tax rate (including 2% Medicare levy) will save up to $18,992 a year on income tax, while a worker earning $95,000 paying a 32% income tax rate will save $12,931, according to Labor's analysis.
Labor policies will benefit those with smaller deposits through the expanded guarantee scheme. As former prudential regulator John Trowbridge noted: "If I needed lenders' mortgage insurance, I would be more attracted to the Labor one. If a first home buyer with a larger deposit didn't need mortgage insurance, they would certainly be more attracted to the Liberal policy of five-year tax deductibility."
The cost savings for buyers under Labor's expanded guarantee scheme are substantial – about $26,888 for a person with a 5% deposit on a median-priced apartment of $670,000, according to Canstar.
Historical Property Performance Under Different Governments
An interesting analysis of CoreLogic data over the past 35 years shows that property values have performed significantly better under Coalition governments:
- House prices across Australia have jumped about 8.8% per year on average under Liberal prime ministers
- Under Labor governments, annual price growth has averaged just 2.5%
- The strongest period of growth was during John Howard's 11½ years in power, when average house prices surged 13.1% per year
While government policies do influence property values, Tim Lawless, executive research director at CoreLogic Asia-Pacific, notes that broader economic factors play a major role: "Interest rates, economic conditions, credit availability, population growth and the level of housing supply available at times of population growth, and shocks are the biggest drivers of house prices."
Supply Constraints Continue to Underpin Price Growth
Despite the focus on boosting demand through buyer incentives, Australia's housing supply shortfall continues to worsen:
Recent Australian Bureau of Statistics figures show that in the December quarter 2024:
- Standalone house starts dropped 6% to a seasonally adjusted 26,549
- Commencements of apartments, townhouses, and semi-detached homes fell 1.5% to 15,217
- Total new home starts declined 4.4% to 41,911
This production level falls significantly short of what's needed, according to HSBC chief economist for Australia and New Zealand, Paul Bloxham: "We're not building enough homes. On the current flow of new households you need to have about 200,000 dwellings being built. This is about 20% below where it needs to be."
Bloxham also noted the implications for property prices: "Any measures you introduce that boost demand rather than supply are likely to lead to higher housing prices than fixing the underlying housing affordability problem."
Former Treasury economist Steven Hamilton agrees with this assessment, stating: "Given highly inelastic housing supply, a big demand subsidy pushes up prices, which pushes up the average mortgage for a first home buyer buying a new dwelling."
"The combination of aggressive rate cuts and election housing policies is creating a perfect storm for property price growth," says Godfrey Dinh, CEO of Futurerent. "We're anticipating a 15-20% uplift in values over the next 12 months, particularly in supply-constrained areas where both parties' policies will drive increased demand."
Rental Market Tightens with Vacancy Rates Near Record Lows
The rental market is showing renewed strength with national rents rising 1.7% over the March quarter, up from 0.4% in the December quarter, according to CoreLogic's latest Quarterly Rental Review.
While rental values experienced a seasonal boost, CoreLogic Economist Kaytlin Ezzy said the underlying trend remains one of moderation. "Rental growth is still tracking above the pre-COVID-19 decade annual average of 2.0%, but the rate of change has slowed considerably. At 3.8%, the 12-month change is now less than half the recent 8.3% peak recorded over the year to March 2024," Ms Ezzy said.
Despite the easing in demand, advertised rental listings remain well below average. Around 99,000 rental properties were listed for rent nationally over the four weeks to 6 April, -22.1% below the historic norm for this time of year.
This supply shortage has driven vacancy rates down to 1.6% in March, from 2.0% in December and just 10 basis points above the record low seen in March 2024. The unit sector led the quarterly growth at 2.3% compared to houses at 1.4%, with Hobart (2.3%), Perth (2.2%), Brisbane (1.9%), and Adelaide (1.8%) recording the strongest gains among capital cities.
Since the pandemic began in March 2020, national rents have climbed a staggering 38.4% – equivalent to an additional $182 per week or $9,442 annually for the average tenant. This significant increase has prompted many households to adapt by forming larger households, particularly in capital cities.
Auction Markets Cool Amid Global Uncertainty
The week leading up to the Easter long weekend saw high auction volumes collide with a drop in confidence amid tariff-related market volatility:
- 3,146 homes were taken to auction across the combined capitals, the highest count since the week prior to Easter last year (3,519)
- The preliminary clearance rate dropped to 64.8%, a 5.9 percentage point decline from the previous week (70.7%)
- Melbourne hosted 1,424 auctions with a preliminary clearance rate of 67.0%, down from 72.9% the previous week
- Sydney saw 1,307 auctions with a clearance rate of 65.5%, down from 69.1%
Cotality (formerly CoreLogic) research director Tim Lawless attributed this cooling to global economic uncertainty: "When there's a lot of uncertainty, which is palpable at the moment, it's going to have an immediate impact on willingness to make high-commitment decisions."
Despite this temporary cooling, the long-term fundamentals of Australia's property market remain strong, with the supply-demand imbalance likely to continue supporting price growth regardless of short-term market fluctuations.
Strategic Implications for Property Investors
For property investors, the current pre-election environment presents several strategic considerations:
- Timing Advantage: With both major parties proposing policies that economists predict will drive prices higher, securing properties before these policies take full effect could provide significant upside.
- New vs. Existing Property Strategies: Labor's policies may benefit the broader market including existing properties, while Coalition policies are more focused on new stock, creating different investment opportunities depending on the election outcome.
- Supply-Constrained Areas: With housing production remaining well below demand requirements, properties in established areas with limited development potential are likely to continue commanding premiums.
- First-Home Buyer Competition: Prepare for increased competition in price brackets that align with the thresholds of government schemes, particularly in affordable suburbs of major cities.
- Higher Price Points: The increased price caps for properties eligible under government schemes (up to $1.3 million in Sydney and $1 million in Brisbane) could drive stronger performance in these mid-market segments.
- Existing Investor Advantage: Current property investors stand to benefit significantly from the proposed policies, with potential equity gains of 8-15% anticipated within 12 months of policy implementation. This presents opportunities to leverage growing equity for portfolio expansion or property improvements, particularly as first-home buyer incentives create stronger demand for well-maintained properties in established areas. With housing demand consistently outpacing supply (as evidenced by the 20% shortfall in construction highlighted by HSBC), existing investment properties in supply-constrained locations are well-positioned to capture both capital growth and strong rental returns.
Market Outlook
While auction results last week indicate some cooling amid global economic uncertainty, the medium-term outlook for Australia's property market remains positive. The combination of policies designed to stimulate demand, persistent supply constraints, and the likelihood of further interest rate adjustments creates favourable conditions for property growth through 2025.
As Prime Minister Albanese acknowledged this week, the government does not intend for house prices to drop, and "historically around Australia prices have tended to rise." This sentiment, combined with the forecast 8-15% price growth from the implementation of either party's policies, suggests property will remain a resilient asset class despite broader economic challenges.
"While global markets continue to face volatility, Australian property is poised to be a standout performer," says Godfrey Dinh, CEO of Futurerent. "The RBA's pivot toward cutting rates combined with expanded first-home buyer schemes will inject substantial momentum into the market, regardless of which party forms government."
How Futurerent Can Help
As both major parties propose policies that economists predict will drive property prices higher, strategic investors are positioning themselves to capitalise on these opportunities before they fully materialise in the market.
Futurerent enables property investors to:
- Access up to $100,000 per property (maximum $500,000 across your portfolio)
- Move quickly to secure properties before election policies potentially drive increased competition
- Fund strategic renovations to maximise returns in a changing market
- Maintain financial flexibility as policy and market conditions evolve
Contact our team today to discuss how we can support you in light of the upcoming election and its potential impact on the property market.
