As the price of goods and services increases, the overarching theme of the 2022/23 Federal Budget will be about combating the rising ‘cost of living’ pressures. For property markets this means addressing housing and rental affordability.
The Reserve Bank of Australia (RBA) will combat strong inflation growth, later in the year, by following the lead of the US Federal Reserve, and other banks around the world, and lift interest rates.
In addition, the Federal Government can also implement several measures to combat rising prices such as reducing taxes, excises and duties on goods and services, as well as providing payments and tax deductions to households and businesses. However, a large portion of surging inflation stems from global supply chain constraints and geopolitical conflicts, so not all measures will be effective.
The recent strong property and rental price growth, as well as a strong increase in the cost of building materials and construction services, has had an effect on housing affordability. Given importance of housing in all our lives, this will be a key concern which the 2022/23 Federal Budget will need to address.
Three federal budget measures to assist housing markets in 2022/23
- Focus on downsizers – to free up underutilized homes and help people relocate and ‘right size’
The pandemic has brought forward the retirement plans of many older Australians. This has seen many sell their large family home and downsize into the local area or undertake a sea or tree change and relocate interstate.
One property market benefit, given the high demand for suburban houses from young growing families, is that downsizing or ‘rightsizing’ by older homeowners increases the number of ‘underutilized’ large family homes listed for sale, particularly in popular capital city suburban markets.
In the 2017/18 Federal Budget the government made downsizing more financially beneficial. They allowed people aged 65 and over who sold their family home to make a one-off $300,000 ($600,000 for couples) contribution to their superannuation.
The 2021/22 the Federal Budget changed the eligibility age for this scheme, reducing it from 65 to 60 years.
The upcoming 2022/23 Federal Budget should be further extended and expanded by increasing the contribution amount and again reducing the age threshold. In addition, the budget should further assist older Australians who want to downsize and relocate to do so by making it easier and cheaper.
- Address structural supply constraints
The closing of international borders has seen Australia’s population growth plumet. This has had varied effects on the economy; however, it has allowed housing supply to catch-up with the growth in households.
Nevertheless, the National Housing Finance and Investment Corporation’s ‘State of the Nation’s Housing 2021–22’ research report finds that this trend will be short lived, finding; “that Net Overseas Migration is expected to fully recover to pre-pandemic levels by 2024–25, and from then household formation is expected to outpace new supply by a cumulative 163,400 dwellings to 2032”.
This means that there is a brief window in which the government can enact policy to address long term structural supply constraints to ensure that the dwelling supply deficit doesn’t get out of hand. This requires investment and a coordinated response from all levels of government to ensure constraints are removed and new housing supply can quickly respond to population changes and economic conditions.
It also needs to incorporate an increased level of investment in social and affordable housing to address affordability issues seen in many of our capital cities and more popular regional centres.
- Invest in regional infrastructure
The pandemic has seen many new population trends emerge, one being the relocation out of capital cities to regional and rural locations. This trend has been driven by:
- an increased desire for a slower paced more laid-back lifestyle
- a desire to live in a lower density ‘greener’ location
- the higher affordability that regional markets offer compared to capital city property markets
- the popularity and longer-term adoption of remote working/working from home
This increased demand for housing outside capital cities saw Australia’s regional property markets outperform last year, and we expect them to continue to be a popular again in 2022/23.
This population shift has, generally, been positive for local economies and communities. However, it has also put a strain on the essential services and infrastructure that supports the local population.
The Federal Budget needs to ensure adequate investment is earmarked for road, rail, health, internet, and education infrastructure, to ensure that this population trend is a benefit to local communities.