Do property prices fall under Liberal or Labor governments?

It’s often said property prices go up under a Liberal government and down under a Labor government, but is that just an urban myth?

The contention reached fever pitch in 2019 at the last federal election, partly because Labor proposed scrapping negative gearing and capital gains tax concessions with speculative price falls in the lead up to voting day.

But property prices going as far back as 1990 shows peaks and troughs in the housing cycle, on CoreLogic data, regardless of which side of politics was in power, with only one constant: and that is prices have been on the up ever since.

Now, the country’s top economists have questioned this often-quoted line, saying that broader economic conditions, such as interest rates, which are largely influenced by global factors, are far more important in dictating property prices than any one side of politics in power over the other.

What Liberal and Labor have both done for decades, the economists say, is consistently add to buyer demand through a combination of growing first home owner grants and schemes, as well as maintaining property tax concessions, all contributing to rising property prices over time.

In fact, prices have risen against the backdrop of falling interest rates since 1990, an overarching reason for the ever-growing property market in Australia, with a handful of notable downturns triggered by global events, such as the 2008 global financial crisis and the start of the pandemic (albeit short-lived), which were out of the control of any government of the day.

CoreLogic’s head of research Tim Lawless said while federal governments of the past have had some influence on the economic trajectory of the country, their impact on housing markets has been indirect and mild.

“Contrary to popular belief, federal elections don’t have all that much impact on housing cycles. Factors such as credit availability, the cost of debt and economic factors are far more important,” he said, adding that so too were commodity prices and currency movements.

The dip in prices in 2008 had little to do with Kevin Rudd coming to power, Lawless said, and was more a reflection of the sheer economic shock from the global financial crisis, which rebounded swiftly after Rudd’s economic stimulus package.

Both sides of politics recognise that housing is an important asset class in Australia, he said, with 60 per cent of bank balance sheets tied up in residential mortgages.

“Housing and its performance is a critical function within the economy and I don’t think any government wants to see any material falls under their watch, which is why we see policies supporting demand, to some extent.”

With more than two-thirds of Australian housing either under a mortgage or paid off, and the remaining one-third of homes rented, which are owned by investors, Lawless said there is “vested interest” in supporting property prices.

“It is a bit of a myth that deserves to be busted.”

Looking back at property-related policies, in reality, they have more or less remained the same since the 1990s when negative gearing was already in place, thanks to Keating (from 1987), and the capital gains tax introduced by Howard (from 1999), according to Dr Shane Oliver, AMP Capital’s chief economist.

“The dominant influence is not who is in power in Canberra but where we are in the economic and interest rate cycles,” Oliver said.

He calculated that on CoreLogic data from 1980 for the eight capital cities, property prices rose an average 6.6 per cent annually under Coalition governments, and 5.2 per cent annually under Labor governments – a statistical difference he described as “minor”.

Oliver said there is a perception Labor is bad for the property market because it’s often wheeled out they are pro-worker and not pro-business, especially after the 2019 election with their proposed changes to negative gearing and capital gains tax concession, which have since been dropped.

“Memories haven’t died from 2019 … that episode lingers in the mind of some,” he said. “It would be wrong to say one would be worse than the other for the property market. The main driver of the property cycle is monetary cycles.”

He said every property downswing from the 1980s through to the current day has been followed by either higher interest rates or restricted credit — all of which are monetary policies dictated by organisations such as the Reserve Bank of Australia or the financial regulator APRA, all independent of government.

Ultimately, he believed both sides were guilty of wanting prices to go up because “there seem to be more votes for rising prices than falling prices”.

Independent Tasmanian-based economist Saul Eslake agreed that the timing of elections generally has not had any particular impact on house prices, rather the broader 30-year trend of declining interest rates is a bigger influence.

While property prices have risen more during Coalition governments, they have also been in office for 18 years compared with Labor’s 12, Eslake said.

Governments of both political persuasions have inflated property prices due to their buyer-demand-driven policies, he said.

“Howard began it when he introduced much bigger first-time home owner grants after the introduction of the GST and extended eligibility for them to establish dwellings, even though established dwellings were subject to the GST.

“And then Rudd gave double first home owner grants during the global financial crisis, and then the Morrison government did it again with this first home builder boost during COVID; so they all do it.”

One thing is for sure, the economists agree, whichever party wins at the May election, prices will go down as interest rates are all but set to rise.