Weaker demand from foreign investors and SMSFs could mean fewer residential development projects in already soft markets, such as Perth, further weighing on stagnating economies, says Graham Wolfe, managing director of the Housing Industry Association.

The Labor party's plan to tackle housing affordability has received mixed responses from industry bodies.

If elected to government, Labor would introduce following policies aimed at tackling Australia's housing affordability woes:

• limit the amount SMSFs could borrow for property investment.
• make uniform taxes that penalise leaving properties empty.
• fees for foreign investors would increase.
• establish a bond aggregator to encourage investment in affordable housing.
• negotiate a new National Affordable Housing Agreement with the states to lower the cost and increase the supply of new housing.
• establish a Safe Housing Fund to increase support for women and children escaping domestic violence.
• limit negative gearing to new properties.
• halve the capital gains discount.

Ken Morrison, Chief Executive of the Property Council of Australia, said the Property Council supports Labor's plan to negotiate a new National Affordable Housing Agreement with the states to lower the cost and increase the supply of new housing.

This move has the potential to also add $3 billion to the economy, according to Property Council research.

Morrison said the Coalition's abolition of the National Housing Supply Council was a mistake.

“We are pleased that the bond aggregator idea, which has already been mooted by the Treasurer, is being embraced by the Opposition. This appears to be an area of common ground where government can move quickly to provide a new source of low-cost, reliable financing for community housing organisations," said Morrison.
 
“We support the establishment of an $88 million Safe Housing Fund to increase support for women and children escaping domestic violence," said Morrison.

Morrison said the Property Council would like to see modelling on the impact of the decision to limit direct borrowing by self-managed superannuation funds on housing.

"The SMSF sector is already heavily regulated," he said.

"The Opposition’s argument there has been a significant lift in lending is not a sufficient reason to curtail the practice."

Morrison said the decision to increase fees for foreign buyers is a political move.
 
“The announcement to increase fees for purchases of property by foreigners works well for talkback radio but it won’t put one ounce of downward pressure on house prices," he said.

Morrison denied there are significant numbers of properties lying vacant, and any claim there are is nothing more than an 'urban myth'.

"It makes no sense for investors to leave vacant properties that could be generating an income," said Morrison.

Morrison called on the Labor party to consider policies that would help pensioners downsize their home without financial penalty.

"We believe some minor, low cost changes to existing pensioner assets rules could release tens of thousands of family homes across Australia into the market place," he said.

Morrison said the Property Council has a firm "difference of opinion" to the Labor party on the topic of negative gearing and capital gains tax.
 
"We believe it is the wrong approach for jobs, investment, and renters," said Morrison.

Wolfe said there needs to be a focus on increasing the supply of new housing to target housing affordability issues, rather than dampening demand.

"Attempts to remove demand for new housing will reduce supply, affordability and jobs,” he said.

Wolfe said the dynamics of the property market vary enormously around the country.

"Sydney house price increases have been driven by many factors, including significant population growth, a ten-year supply recession, low interest rates and the impact of extremely high stamp duty costs on sales in the established housing market," he said.

“The dynamics in Perth, Adelaide, Northern Queensland and Darwin are very different," he said. 

"Foreign investors and self-managed superannuation fund investors cannot be blamed for the recent fall in house prices in Perth and Darwin, or the slower level of new housing activity in Adelaide. Inflicting demand side measures on these capital cities ignores the significant negative impact on housing supply, jobs and economic growth in these economies."

"If foreign capital investment in Australia helped bring significant residential development projects to commencement in Perth, creating jobs and production, the Western Australian economy would be much better for it," observed Wolfe.

Wolfe proposed that Australia introduce a land planning body that could provide national monitoring and forecasting of future land release and housing requirements, and which could inform government policy on financing, infrastructure and demographics.

“Other policies to address housing affordability must include a reduction in the imbedded taxation on new housing, government funding to support infrastructure, and reforms to address unnecessary planning delays in bringing new residential developments to market," said Wolfe.

A national ‘cost of housing’ inquiry could examine how regulations, taxes, and barriers imposed by all three levels of government overlap to affect housing affordability, said Wolfe.

Read more about government policy to address housing affordability:

Record low rates no help to housing affordability

Housing affordability on governments' agenda

Rates on hold, but housing affordability remains 'hotly debated'