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Stock MarketAs Australia gears up for the 2025 federal election, the focus on housing affordability intensifies. Both major political parties have outlined policies aimed at enhancing access to homeownership. However, industry experts are concerned that these pledges could potentially lead to a decline in home values and an increase in negative equity.
Eliza Owen, head of research at Cotality, delved into the implications of the proposed policies on property buyers and the broader economy. While initiatives like Labour’s 5% deposit scheme for first-time buyers and the Coalition’s tax deductions for new homeowners aim to address affordability issues, there are fears that they might exacerbate the existing crisis without a corresponding boost in housing supply.
Owen emphasized that a drop in home values may not necessarily destabilize Australia’s property market. In fact, she argued that unchecked price growth and escalating housing inequality pose more significant long-term risks. Despite recent years of rising property values, homeowners can still realize capital gains even if values stagnate or decrease.
Recent data from Cotality revealed that a significant majority of homeowners would maintain a strong equity position even if national home values dipped by up to 10%. This indicates a level of resilience in the market, with most vendors still likely to make profits on property sales.
While concerns about negative equity persist, insights from the Reserve Bank of Australia suggest that the risks may be overstated. Owen pointed out that a minimal percentage of mortgaged households are currently in negative equity, largely due to the high value of homes. Even in the face of a severe 30% drop in housing prices, the majority of mortgagors would retain positive equity.
Analysis by the Australian Prudential Regulation Authority (APRA) further indicated that a significant portion of home loans were secured with deposits of at least 20%, providing a buffer against potential negative equity scenarios. This data suggests that a moderate decline in property values is unlikely to push most buyers into negative equity territory.
Despite the stability of mortgaged households, certain policy proposals ahead of the election, such as expanding low deposit schemes, could introduce new risks to financial stability. Owen warned that these initiatives might compromise the financial security of homeowners, particularly those who have recently entered the market during periods of rapid growth.
While a downturn in property values may concern some, Owen stressed that it could actually benefit aspiring homeowners by making entry into the market more accessible. She highlighted the importance of broader housing reforms to ensure sustainable homeownership opportunities for Australians, cautioning against short-term solutions that fail to address long-term affordability challenges.
In conclusion, Owen emphasized the need for a holistic approach to housing reform that fosters affordability and accessibility. She underscored the importance of addressing the root causes of housing challenges rather than relying on temporary incentives. As Australia navigates the complexities of its property market, the debate over home values and affordability continues to shape the nation’s economic landscape.
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