State Election and Negative Gearing.

Leaving politics aside Victorian ALP’s election victory last weekend may yet be the saving grace for Victorian home owners, the building industry and business in general in the next four years.

We all know that we are going in to a housing decline not only in Victoria but Australia in general.

The extend of this decline will depend partly on the extend and severity of the banking regulator and credit squeeze driven by the royal commission.

There is no doubt that building orders have slumped dramatically and it is now obvious that Victoria will lead the building’s industry’s downward path, irrespective of which party wins in Canberra next year.

In Victoria, a severe slide is well and truly underway. In outer suburban areas, Victorian builders are already experiencing orders down by 40 to 50 per cent from a year ago. Inner suburbs are not as bad. The Melbourne outer suburban land sales boom is over and volumes have slumped. Prices will follow.

However most Victorian builders have contracts that will keep them going, in some cases, through to 2020.  This will partly mask the underlying reality of what will be happening in the property sector and in the economy in general.

Assuming then that Bill shorten wins next year and caries through with his proposed policy of abolishing negative gearing on existing properties, we could then assume further erosion of pricing and further decline of building activity.  This could then feed further in to lower economic activity and higher unemployment.

Given the underlying fundamentals of the property market, the proposed abolition of negative gearing must be avoided at all cost. What made sense three years ago does not make sense now!

The only saving grace in all this, is the Andrew’s government commitment in infrastructure spending which is leading all other states by a mile, that will act as circuit breaker in the decline in residential building activity, will increase population growth which could underpin property prices and will minimise the impact on employment.