How the 2020-21 federal budget will impact Australia’s property market

While this year’s big-spending, coronavirus recovery budget focuses largely on getting Australians back to work and spending again amid the economic fallout from the health crisis, there are some positive outcomes for the property sector.

The extension of the First Home Loan Deposit Scheme, with a specific focus on new homes, was the key takeaway for property in Tuesday’s budget announcement, but there are a number of other measures that will impact the industry both directly and indirectly, now and into the future.

Here are the key takeaways for property.

Direct impacts

While direct impacts for property were limited in the federal budget, there were some key highlights.

First-home buyer incentives

An extra 10,000 places in the federal government’s First Home Loan Deposit Scheme will be available to first-home buyers this financial year, although the additional places are limited to new home builds.

Under the scheme, eligible first-home buyers will only need a 5% deposit instead of the 20% needed to avoid lenders’ mortgage insurance, with the federal government guaranteeing up to 15% of the loan.

Finance for affordable housing

The federal government provided an additional $1 billion through the National Housing Finance and Investment Corporation to support the construction of affordable housing.

Help for Indigenous home buyers

Indigenous Business Australia will receive an additional investment of $150 million to extend the Indigenous Home Ownership Program.

This will deliver 360 construction loans in regional Australia, assisting Indigenous Australians into home ownership.

Indirect impacts

There are several features in the 2020-21 federal budget that will have a flow-on effect for the property sector, both short and long term.

Tax cuts for house hunters

The federal government is bringing forward the second stage of the already-legislated personal income tax cuts, which will benefit about 11.6 million Australians.

The tax cuts will be backdated to 1 July this year instead of July 2022.

Middle-income earners will receive tax relief of up to $2745 for singles and $5490 for dual-income families this year compared to 2017-18 rules.

A one-off additional benefit, worth up to $1080 per individual, will be also available to more than 10 million taxpayers.

Putting more money into the pockets of Australians will help prospective home buyers break into the property market sooner than expected, as they will be able to save more towards a home loan deposit as well as secure more finance.

The tax breaks will also help existing home owners to pay down their mortgages sooner.

Job security for renters

Having born the brunt of COVID-19 job losses, the federal government is offering incentives to encourage businesses to hire eligible young job seekers, under its JobMaker hiring credit scheme.

For the next 12 months, eligible employers will receive $200 per week for new employees aged 16-29 and $100 per week for new employees aged 30-35.

This measure will bolster job security for COVID-hit young Australians, many of whom are tenants who are currently struggling to pay their rent. This measure could help maintain demand in Australia’s rental market as fewer tenants will be forced to move out of their homes due to rent arrears.

Jobs for future first-home buyers

The budget includes several other measures to stimulate job creation now and into the future, which could have a roll-on effect for property in guaranteeing the country’s future first-home buyers. These include:

Investment in liveability

The budget announcement included a further $7.5 billion in new infrastructure spending, which will not only generate hundreds of thousands of jobs but may also assist in making areas more liveable, stimulating future property investment.

The investment comes on top of the $100 billion over 10 years previously foreshadowed.

There has also been an additional $3 billion committed to shovel-ready jobs, which includes $2 billion for small-scale road safety projects and $1 billion for the Local Roads and Community Infrastructure Program.

Slowing population growth a risk for housing sector

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.

Budget forecasts showed Australia’s population will grow to almost 26 million in 2022, about one million fewer people than were forecast for the same period in last year’s budget. This is mainly due to a negative drop in net migration following international border closures during the pandemic, which is not expected to return to positive levels until 2022-23.

Australia’s fertility rate is also expected to drop to 1.58 children per woman during the 2021-22 financial year, down significantly from the 1.9 predicted in 2019-20.

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. While we don’t know how long borders will remain closed, it is likely that developers will feel the brunt of the population growth slowdown given that most non-citizens wishing to purchase have to buy new homes.

With HomeBuilder and other stimulus bringing forward purchasing intentions particularly for first-home buyers, when the scheme expires it is likely that the shut borders and exhaustion of first-time buyers will leave a gap in demand for new homes.

Originally published as How the 2020-21 federal budget will impact Australia’s property market