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This year’s budget is focused on the rising cost of living. High inflation and rising mortgage rates are putting a lot of pressure on people’s budgets. And although tax revenue has been pretty decent over the last 12 months thanks to strong mining conditions, the Government now has record high debt as a result of the pandemic.
While Government debt repayments are a challenge, so too is housing. International migration levels are expected to hit an all time high of 400,000 people this financial year. At the same time, the number of residential building approvals has been falling and there are fewer homes being completed. Property investors have withdrawn from the market, primarily as a result of higher interest rates. There is a shortage of properties to rent, as well as buy. Unfortunately the measures to fix housing supply were limited, and there was nothing to fix the challenges in the construction sector.
Expansion of the First Home and Family Home Guarantee scheme
The First Home and Family Home Guarantee scheme allows first home buyers and eligible families to buy a home with a 5 per cent deposit without having to pay mortgage insurance. The scheme is being extended to allow people to partner with family members or friends to buy a home. For the Family Home Guarantee, it also allows for other legal guardians to buy a property, as opposed to just parents. It will also be extended to allow for non first home buyers to buy a home, provided they haven’t owned a home in 10 years.
The body that administers the scheme, National Housing Finance and Investment Corporation, has also had its liability cap increased from $2.5 billion to $7.5 billion which will also expand the number of people who can access the scheme. Greater funding and an extension to the scheme to allow for changes in the way people buy homes is a welcome one
Tax changes for build to rent
Almost all rental homes are supplied by mum and dad investors however corporate ownership of rental properties is a growth area. At present, build to rent only provides around 1 per cent of rental properties but there is an opportunity to expand this significantly. A sticking point has been how build to rent is taxed, particularly compared to other property types. The budget has outlined that Managed Investment Trust (MIT) withholding tax rate will be reduced from 30 per cent to 15 per cent. The rate of depreciation will increase to four per cent. The changes are expected to result in an additional 150,000 rental apartments over the next decade. This is the main budget item that will go some way to addressing housing supply shortages
Affordable and social housing
The Housing Australia Future Fund is before the Senate and if approved, will provide $10 billion to invest in social and affordable housing. Although not part of the budget, this would provide 30,000 additional homes. The Prime Minister highlighted today that supply is the challenge right now and it isn’t an easy fix.
Greener homes
Energy costs are a challenge at the moment for many households. As well as offering lower energy bills for low income households, the budget also includes $1 billion to provide 110,000 low cost loans to make homes more energy efficient. Another $300 million will go towards energy efficiency upgrades in social housing.
Rent relief
Commonwealth rent assistance will be increased to ease housing pressure for those on low incomes. More than 1 million people receiving Commonwealth rent assistance will receive a 15 per cent increase in their fortnightly payment, the largest increase in 30 years. With rents rising rapidly in most parts of the country, this will be welcome immediate relief. Unfortunately it won’t address the fact there aren’t enough rental properties in places that people want to, or need to, live.
What could have been offered
There are two major challenges at the moment. There is a shortage of rental properties and there are problems with the pipeline of new supply. A third problem is also emerging - house price growth has started up again. Despite eleven interest rate rises, the shortage of homes is moving from a rental problem to a pricing problem.
Change to build to rent will go some way to addressing the rental supply shortage but it is still an emerging source of rental properties. The majority of rental properties (well over 80 per cent) are supplied by mum and dad investors. An incentive similar to Home Builder but available only to investors would be a quick way to address rental shortages.
Budget means to address construction industry challenges are more difficult. Although construction material prices are coming down, labour shortages are still apparent. Ideally the lift to the international migration cap will address this. Once we start to see construction prices stabilise, it will mean more normal levels of housing supply. If the Housing Australia Future Fund is approved, this will provide an additional push.
