Implications for the housing market following the Federal Budget

While the recent Federal Budget did focus on getting Australians back to work, offering tax relief, providing business incentives and funding infrastructure, the housing sector still got a look in. The industry will get a much-needed boost, both directly through stimulus packages and indirectly through the measures implemented to get Aussies back on their feet post-pandemic.

Josh Frydenberg, the Federal Treasurer stated “this is a heavy burden, but a necessary one to responsibly deal with the greatest challenge of our time,” in his October 6 budget speech, also stating that “every sector of our economy, every corner of our country, will benefit.”

The direct benefits for housing

The budget provided three main measures; an extension of the First Home Loan Deposit Scheme (FHLDS), an increase to low-cost finance for affordable housing through the National Housing Finance and Investment Corporation (NHFIC), and additional funds to be aimed towards the Indigenous Home Ownership Program.

First home buyer incentives - By extending the FHLDS, there are now a further 10,000 places available until June 2021. That’s on top of the already 20,000 places the Federal Government had planned for 2020.

However, there’s a catch. The original spots allowed eligible first home buyers to purchase any type of property, but these additional places are only for newly built homes. The good news is, price thresholds have been increased, a clear move to invigorate the construction industry.

Eliza Owen, head of Australian research at CoreLogic said, “it will be interesting to see if these conditions create as rapid an uptake as the places for established housing. In 2008, the temporary boost to the First Home Owner Grant provided added incentives for new builds, yet 85 per cent of its uptake was directed at established housing.”

Affordability across the board - The Government announced it was increasing NHFIC’s cap on total guaranteed liabilities by an additional $1 billion to $3 billion. It will also undertake an independent review of the NHFIC to establish whether it is meeting its objectives of improving housing outcomes for Australians.

Indigenous Business Australia will receive another $150 million investment to extend the Indigenous Home Ownership Program. The funding will support the delivery of new homes, refurbishments and infrastructure while also providing incentives to establish more sustainable housing systems in remote Indigenous communities.

An indirect boost for property

Increased infrastructure spending - Cameron Kusher, executive manager for economic research with REA Group, said a further $7.5 billion spent on new infrastructure would be a positive move for many property markets. “[It would] not only generate hundreds of thousands of jobs but may also assist in making areas more liveable, stimulating future property investment.”

Tax breaks on the cards - It was already in the pipeline, but the government decided to bring forward the second stage of slated personal income tax cuts, which will be backdated to 1 July this year instead of July 2022.iv Middle-income earners will receive tax relief of up to $2745 (singles) and $5490 (couples) and more than 10 million taxpayers will benefit from a one-off tax break worth up to $1080 per person. Mr Frydenberg said “tax cuts will put more money into the pockets of 11 million hardworking Australians and their families.”

These tax cuts will mean more money in the wallets of Australians which will have a flow on affect to the property market. Prospective home buyers may be able to get into the market sooner than they anticipated with an increased capacity to save towards a deposit, while those with a mortgage may be able to pay down their mortgage faster.

Relief for workers and businesses - “There is no economic recovery without a jobs recovery. There is no budget recovery without a jobs recovery,” stated the Treasurer on budget night. Jobs were always going to be high on the agenda, given that Australia’s unemployment rate rose to 6.9 per cent in September. Under the JobMaker program, there will be incentives for businesses to engage eligible young job seekers. The scheme will give employers $200 a week for new employees aged between 16 and 29, and $100 a week for those aged between 30 and 35.

Greater job security, particularly among young Australians, will help to maintain the current demand in the rental markets as fewer tenants need to move out of their homes due to rent arrears.

People power - According to budget forecasts, Australia’s population by 2022 will be about 1 million fewer people than was originally expected. The dip is due to international border closures during the pandemic coupled with a slowing birth rate. Mr Kusher said “population growth is one of the key pillars underpinning the property market, but with Australia entering its slowest population growth in more than a century, the housing market is at risk.”

“To counter this drop in population growth, the federal government says it will focus on attracting skilled migrants and prioritising onshore visa applicants to recover once international borders reopen. The reduction in population growth will impact on household formation and reduce overall housing demand,” he said.

While the recent Federal Budget announcement aims to stimulate the economy after the pandemic induced recession, our recovery will largely depend on the ongoing management and containment of COVID-19.