So what’s my prediction for the weekend?
Richmond to beat Carlton by 1 point… Go tiges!
Ok, I know everything is about the election this weekend. And a lot of people have been asking me what I think will happen. Now I’m not paid to have an opinion about that, and I don’t really care, but I can tell you what I reckon it means for property.
So it seems the most likely outcome at this stage is a Coalition win. In a nut shell, if that happens, it should be a solid boost to property.
Now I’d love to tell you that the reason for this is that the Coalition has a raft of superior property market policies, or that their management of the economy is going to be just that much better.
Maybe Hockey will do a better job at the helm. Maybe he won’t. But unless he really fluffs it up, it’s not likely to matter much.
The fundamental drivers of a property resurgence are already in place (and if you really want to find a hero in all this, look to Glenn Stevens). The market has already asserted a clear trajectory that all the policy in the world will find difficult to shift in the next 6 months or so.
And a decisive win will bring back to the market the only thing that’s been missing so far: confidence.
There’s an interesting question here. Do elections normally have much impact on the market? RP Data published an interesting note last week, looking at what happened to property after the last 5 elections.
“The five most recent federal elections have been: 3 October 1998 (Coalition win), 10 November 2001 (Coalition win), 9 October 2004 (Coalition win), 24 November 2007 (Labor win) and 21 August 2010 (hung parliament but Labor take power).
Looking specifically at the change in home values over the 12 months following a federal election you can see that in 1998, 2001 and 2004 home values rose however, following the most recent two elections home values have fallen.
The strongest annual increase in home values following an election was 2001, with values increasing by 16.4% followed by the 1998 election where values rose by 10.7% over the following year.”
So, based on this evidence alone, it’s a pretty clear win for the Coalition. House prices rise after Coalition victories – at least in the short run. So is it locked in stone? Or is this all just a coincidence?
Well, first of all, 5 elections is a pretty small sample, and it ignores some massive mitigating factors.
Like the GFC.
One of the biggest global shakeouts in history rocked Australian property through the Labor years. It touched every real estate market in the world. Australia did well to avoid a more horrible fate.
So Labor should feel justified that this comparison is a bit unfair. But it won’t help them much. It’s this story that’s taken root in the Australian public’s mind. And once it’s taken root, all the data and argument in the world won’t shift it easily.
Take the debt story. I’ve been surprised that Labor hasn’t gone harder on this. It is true that (some measures of) government debt have risen in recent years. Why? The Coalition has been able to gain real traction with the argument that it was “Labor Waste”.
But spending was more or less the same under the Labor and the preceding Coalition government. It’s just that the Coalition had a boom that was bumping up the tax take and government coffers. Labor had a GFC and a collapse in tax revenue.
So should Labor have cut spending then? Well Joseph Stiglitz, a Nobel prize winner in economics argues that Labor’s response to the GFC was text book perfect (coming from a guy who actually writes text books.)
He argues that a big splurge of spending early in a crisis is just what you need to maintain confidence, and it actually helps protect tax revenues and the budget bottom line over the long run.
(Of course a resurgent mining boom was a big help as well, and that had nothing to do with Labor.)
But Labor has been completely ineffective in selling this message. This is partly due to Abbott’s effectiveness in opposition, and partly due to their own internal disarray.
If I were Labor, I would have gone much harder on this. In hindsight, as we launch into the 23rd year of uninterrupted economic expansion, it was the perfect thing to do. Housing busts in the US, the UK and Ireland should have been scary reminders of a fate that we were lucky to avoid.
Of course the Coalition government would have done exactly the same thing, so it’s not really about skill. But never the less they’ve allowed the Coalition to out-sell them on a simple message that current debt levels are entirely about ‘waste’. Labor could have easily done more to counter it.
But due to their own incompetence and a raft of other policy mistakes, they’ve given the coalition a massive free kick.
And now, on top of the surging markets that followed previous Coalition victories, a year from now the scoreboard will chalk another win up to the Coalition. RP data report that house prices nationally are already up 4.9 percent over the year. Sales volumes are up a bumping 19 percent. The momentum is already there.
And so it gives the Coalition the chance to engrave their central idea deeper and deeper into the public psyche. The Coalition is just better at managing the economy.
And this idea is gaining so much weight, that it’s becoming a self-fulfilling prophecy.
More on that, and some herd psychology, tomorrow…