What Impact Do the Recent Government Budget Announcements Have on Property?

Nathan Ashton

The recent State and Federal Government Budget announcements have highlighted the ongoing approach to boosting the rate of homeownership. The impact of this is a double-edged sword. The goal of the schemes is to reduce housing costs, making it more affordable and accessible to buyers. While conversely, the strength of the economy is largely centred around the value of property as most household wealth is locked in our homes. Therefore, reducing the value of a property will reduce household wealth and create a negative economic impact.

The issue with any strategy that aims to make homes more accessible and affordable is that it often has the opposite impact. Some examples include, the First Home Loan Deposit Scheme, First Homeowners Grant, Home Builders Grant and now the proposed Single Parent 2% guaranteed loans.

These grants aim to give buyers greater access to mortgages and provide them with more opportunities to purchase a property. In the short term, each of these government schemes increases the value of a property. If you have an increasing number of buyers who can secure funding and purchase property, then the competition increases. Increased competition leads to competitive bidding on a property, and the impact is an increase in house values.

Fundamentally the strategies are in place to allow lower-income and younger buyers to purchase property now. However, the flow-on effect from this is that it will make it harder for the next generation of buyers coming through in 3-5 years to purchase a property.

There will always be a cost to the economy when providing incentives, but the benefit should never be overlooked in fear of diminishing future potential. If we use the Home Builders Grant as an example, the simple observation is that it benefits builders and landowners; more buyers enter into contracts for house and land packages, creating jobs instantly. The positive impact is ‘10 fold’ through the economy.

It creates jobs – civil construction to create land estates, salespeople, fencing contractors, builders and building supply companies. The individual trades involved in construction purchase coffee, breakfast, lunch, snacks, sending money through the economy.

When a new home is built, the homeowners will spend money on retail; furnishings, white goods, decorating, landscaping; there is a continual sound of the ‘tap and go machine’ ticking along.

On the flip side of this, by generating economic activity in the construction sector, there will be an increase in supply chain and labour costs – while also creating building product shortages. One major issue in new home construction has been the supply of land.

When there is market competition and a higher volume of sale competition, there is an associated price increase; this then expedites the delivery of new land releases due to the increased productivity. The problem that we have experienced locally is that we have not been able to keep the supply in check, with many major land subdivisions 2-3 years away from being titled.

If you then allow 6-12 months for the building process, the reality is that the time from signing a land contract until you can put a key in the door could be 3-4 years. In the meantime, competition has driven the price of goods and services up, and it increases the cost of the property without giving buyers access to a tangible finished product.

The moment a contract is signed, there is upward pressure on the cost of delivering a property. This is then reflected by the increase in value of the finished property, which raises the question; does it make homeownership more affordable and accessible?

The Downsizer Contribution Scheme will allow older Australians to sell their current home and add up to $300,000 (for singles) and $600,000 (couples) of tax-free money to their superannuation funds. Currently, the age for the scheme is 65 years and above, with this lowering to 60 in July 2022. This will incentivise mature aged Australians to sell up, and downsize, taking advantage of higher-density living options, including lifestyle villages, apartments, and townhouses. I anticipate that motivated sellers aged 60-64 will wait until next year for the scheme to come into effect, which will increase demand for downsizer options and increase the supply of the long-held family home.

We will then see pricing pressure created for mid-range properties as downsizers look to purchase a lower value home. This will force prices up and make it harder for the low-to-middle income earners, who will already be facing increased competition due to other government incentives, to enter the market.

The State Government budget has provided several tax increases, which they have described as ‘modest’. These include an increase in land tax and a premium stamp duty; in my opinion, this will create a greater gap between the ‘have and have nots’. The increase in land tax will have a profound impact on owners as this is a cost that cannot be passed onto tenants.

They say that 10% of Victorians are paying land tax; I would be very keen to see what percentage of these are self-funded retirees (SFR). Locally, there is a significant number of landlords that are SFR. They have worked hard all their lives to accumulate assets that will generate an income for them to live off of post-retirement; and will not be accessing the pension and associated benefits.

The increase in this tax impacts a demographic that does not benefit from low-interest rates because it reduces their income; so effectively, this is a double-dip. While interest rates are low, their income is reduced, and now with the increase in land tax, they are also paying out more. The short-term excitement from a government level is only that, because make no mistake there will be a flow-on through the economy.

The local Geelong economy has been given a confidence boost with a recent announcement regarding the Viva Energy Group. The Federal Government will implement a long-term Fuel Security Package (FSP) to support Australia’s refining industry. As part of the package, Viva Energy will make a 6-year commitment to maintaining refining operations through to 30 June 2027, with a further 3-year option to 2030. The benefit to the Geelong economy is profound, with Viva Energy being responsible for around 700 jobs and the last major manufacturing facility in the Geelong region.  

There is no perfect solution, and the short-term incentives are welcomed and well utilised. There will always be ‘pros and cons’, and the short-term stimulation has an immediate impact.

It should give confidence to those sitting on the fence wondering whether they should make property purchases. What this highlights is that if you can, then you should. The State and Federal Government budget announcements indicate that there will be long term growth, so invest for the future and act now if you can.