Get set to see a broad range of stimulus for housing supply, affordability and property investment following the release of the 2023/24 Federal Budget.

Announced by Federal Treasurer Jim Chalmers on May 9, the Budget delivered a raft of incentives for investors in residential property, new home builds and first-home buyers. Low-income renters are also poised to get a helping hand thanks to a Federal Government decision to increase Commonwealth Rental Assistance by 15 per cent at a cost of $2.7 billion over five years.

Delivering the Budget speech to parliament, Mr Chalmers spoke of Australia’s housing crisis, offering a smorgasbord of solutions to reduce pressure on renters, first-home buyers and investors. He also announced stimulus programs for new home builds that are designed to not add to inflationary pressure.

This year’s Budget is squarely focused on the rising cost of living. High inflation and rising mortgage rates are putting increasing pressure on people’s budgets. And although tax revenue has been very strong over the last 12 months thanks to upbeat mining industry conditions, the Government now has record-high debt as a result of the pandemic. 

Government debt repayments are a major challenge, but so too is housing. International migration levels are expected to hit a record high of 400,000 people this financial year. At the same time, the number of residential building approvals has been declining and there are fewer homes being completed.

Since the pandemic hit, a sizeable group of property investors have withdrawn from the market, primarily as a result of higher interest rates.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 to buy.

Key elements of the Budget include:

Tax changes for build to rent

Building approvals have pulled back sharply over the past year and are now sitting at decade lows, led by a significant 46 per cent year-on-year drop in approvals for private sector apartments, especially for larger apartment constructions.  

In the previous 2022/23 Budget, details were provided of the Albanese Government’s Housing Accord, which aims to build one million, new, well-located homes over five years from 2024. 

This year’s Budget aims to assist in achieving this by incentivising an increase in the supply of rental housing by reducing barriers to entry and tax disincentives for large-scale investment via the build-to-rent sector.  

Currently, almost all rental homes are supplied by mum and dad investors, but corporate ownership of rental properties is a growth area. At the moment, build-to-rent only provides around 1 per cent of rental properties but there is an opportunity to expand this significantly. A sore point for investors 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 4 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 tackling housing supply shortages.

Expansion of the First Home and Family Home Guarantee Scheme

The First Home and Family Home Guarantee scheme lets first home buyers and eligible families 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. The Family Home Guarantee 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 organisation that administers this scheme, the National Housing Finance and Investment Corporation, has also had its liability cap increased from $2.5 billion to $7.5 billion which will 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 should help boost property sales transactions and open the door to homeownership to more Australians.

Affordable and social housing

The Housing Australia Future Fund is expected to be voted on in the Senate shortly. If approved, the fund will provide $10 billion to invest in social and affordable housing. Although not part of the Budget, this would provide 30,000 additional homes. Since the release of the Budget, Prime Minister Anthony Albanese has highlighted that supply is the challenge right now and it isn’t an easy fix. 

Greener homes

Energy costs are a challenge for many people. 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 is already available to Australians on pensions and benefits including JobSeeker, the Family Tax Benefit and Parenting Payment.  

The Budget has delivered funding to increase the maximum rates of the Commonwealth Rent Assistance payment by 15 per cent in a bid to help ease pressures on low-income renters. 

The maximum increase will be between $15.73 and $31.76 a fortnight. This measure is aimed at assisting vulnerable lower-income renters. For most low-income earners, rent assistance is a targeted and cost-effective safety net. 

Strong demand to rent, bolstered by the fast pace of immigration, is outstripping the supply of available rentals, with the total supply of rentals in the capital cities sitting at historic lows in March, with the supply of available rentals down 18.3 per cent year-on-year.

Meanwhile, advertised rents in the capital cities increased by 13 per cent over the year to March, driven by the extreme shortage of rental stock. 

The increase to Commonwealth Rent Assistance is the largest in more than 30 years, but rent assistance payments have long fallen behind surging rental prices. 

Impact on interest rates

Economists say the Federal Budget is unlikely to have more than a marginal effect on the Reserve Bank of Australia’s interest rate stance, but some risks remain including the inflationary effects of a population boom on rents.

The Budget predicted inflation would slow from 7 per cent in the March quarter to 6 per cent for the April-June period and almost half that – to 3.25per cent – by June 2024.

Mr Chalmers has downplayed any inflationary pressure coming from a Budget that produced the first projected surplus – at $4.2 billion for the current fiscal year – since 2007-08.

“We are supremely confident that the Budget that we handed down last night will take some of these cost-of-living pressures off without adding to inflation,” Mr Chalmers told the National Press Club in Canberra soon after delivering his Budget speech.