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The Federal Budget and housing affordability

ByAndrew Mirams

Treasurer Josh Frydenberg delivered a budget like no other this year; and even more specifically, it has been a budget like nothing a conservative party government has ever handed down before. It is a big-spending, big-debt budget that more closely resembles a Labor Party budget than one from a party that brands itself the party of fiscal responsibility. 

It also had a lot to offer to anyone connected to property.

Now the dust has settled a little, it seems appropriate to provide a concise assessment about what was delivered and how that plays out for Australian real estate prices.

There are incentives for those wanting to be homeowners, rather than renters. There are incentives for those wishing to downsize, those wishing to build and those wishing to substantially renovate. 

First Home Super Saver Scheme

First introduced in the 2017-2018 budget, this successful scheme has been extended in the budget and now Australians can contribute up to $50,000 to their super fund that can be used as a deposit, almost double the original $30,000 limit. Coming into effect from 1 July 2022, eligible individuals will be able to withdraw up to $50,000 from their superannuation account, provided they have made that amount in voluntary contributions from 1 July 2017. 

First Home Loan Deposit Scheme

This measure helps young home buyers avoid the added cost of LMI by the government essentially going guarantor on the loan when borrowers have only five per cent deposit. In other words, on a $500,000 purchase, instead of having to have the required 20% deposit i.e. $100,000 available, 1st home buyers only need now the 5% which is $25,000 available and allows them much quicker entry to the market. This has been successful from the moment it was first introduced, with the first 10,000 places being snapped up quickly. In the latest budget an additional 10,000 places were made available for first-time buyers. 

The other good thing is that price caps have been increased in line with the rising real estate markets as follows:-

Family Home Guarantee

Single-parent families have not been forgotten in the home-buying incentive bonanza. With the new Family Home Guarantee, over the next four years, 10,000 single-parent families will be able to build or buy a home with a deposit as low as 2 per cent, with the government essentially going guarantor on the loan to avoid the added cost of LMI. As above, 2% of a $500,000 purchase would mean that single parents need to only show that they have $10,000 available and they would then be eligible to buy their home under this scheme.

This will mean eligible parents – those who earn up to $125,000 with dependent children, whether they have bought previously or not – will be able to provide the security and stability of owning the family home to their children. 

If you want anymore details on any of these schemes, we’d encourage you to visit https://www.nhfic.gov.au/what-we-do/support-to-buy-a-home  in order to find out more.

Downsizers

The federal budget hasn’t forgotten pre-retirees and retirees. Previously, retirees were able to contribute up to $300,000 into their superannuation without tax penalty, or $600,000 for couples, upon reaching preservation age of 65. However, the budget has brought this age down to 60 years in a bid to free up housing for younger property buyers. 

This is a fantastic incentive to be able to downsize and also considerably boost your retirement superannuation savings in the same process. 

First home buyer New

Impact on affordability

The low-interest environment has created a surge in demand, pushing up prices around the country. 

While there is no arguing that there are plenty of incentives to help buyers get into the property market, AMP Capital chief economist Shane Oliver has noted that almost all budget housing measures have focused on demand, rather than supply. 

“The housing measures continue to focus more on boosting demand rather than supply which will result in higher prices and more debt,” Dr Oliver was reported to say on Realestate.com.au. 

“In terms of housing, a preferable approach would be to focus far more on boosting supply and to take advantage of the opportunities provided by the work from home phenomenon to encourage more to move to more affordable regions while at the same time making sure increased regional demand is matched by more supply,” he said. 

Helping the construction sector by introducing greater incentives for building, rather than buying pre-existing homes, would be a meaningful measure for the market. 

Also, winding back stamp duty costs would be a significant factor towards improving affordability, which, in turn, would help more people access the market. 

It should be noted that the Queensland state budget, handed down in May, delivered a significant investment in social and affordable housing.

More than $1 billion was announced in a Housing Investment Fund to drive new housing supply and $1.8 billion over four years to increase social housing supply and to upgrade the existing social housing portfolio. 

These types of measures will potentially do more to improve affordability factors for property buyers. 

With national vacancy rates at all-time lows around the country, supply remains the critical factor. More supply for homeowners and more supply for investors to add to the rental pool is critical for affordability issues to remain in check.

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The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.

Andrew Mirams
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