What the 2023 budget means for our property markets

What the 2023 budget means for our property markets

May 11, 2023 | by DiJones

Released on Tuesday 9 May, the 2023 Federal Budget certainly put the current housing crisis in Australia front and centre, with tax breaks, cost-of-living relief, rent assistance and increased investment housing providing a welcome measure of relief for many.

But what exactly do these changes mean for our property markets? What potential impacts will they have on investors, first-time buyers and homeowners?

Let's have a look at four key elements in the budget that may affect our markets in the coming six to twelve months.

1. Changes to the Home Guarantee Scheme

The government has expanded the eligibility criteria for their First Home, Regional First Home, and Family Home Guarantee Schemes. This effectively makes it easier for people to access the schemes, which allow eligible buyers to purchase a property with as little as a 5% deposit, the rest - up to 15% - being guaranteed by the government.

From 1 July 2023, it’s not just married or de facto couples who can put in a joint application for the First Home and Regional First Home Guarantee Schemes. Friends, siblings and other family members will also be eligible to apply together.

In addition, the scheme will now be open to people who have previously owned property, provided that they haven’t done so in Australia in the last ten years.

The Family Home Guarantee Scheme eligibility criteria will also change to include single legal guardians, such as grandparents, as well as the already eligible single natural or adoptive parents.

Finally, the schemes will be made available to eligible permanent residents as well as Australian citizens.

2. Tax breaks for build-to-rent properties

Our current rental crisis has prompted the government to encourage investors to build more rental properties.

Withholding tax will be cut by half to 15% and the capital works tax depreciation rate will rise from 2.5% to 4% for new build-to-rent projects.

There are eligibility requirements and these tax breaks won’t affect existing dwellings, but the measures could still make a big difference to the rental market by increasing housing supply in the long term. In fact, according to the budget, these incentives could lead to 150,000 new rental properties being built over the coming 10 years.1

Although this will not be a quick fix and rental markets are expected to remain very tight for some months to come, it is a step towards alleviating the pressures faced by the rental sector.

3. Cost-of-living assistance

The budget includes several measures to address the cost-of-living pressures that many Australians are facing.

Wage rises for certain sectors, cheaper child care, improvements to paid parental care, fee-free TAFE and vocational education programs, energy price relief and reduced out-of-pocket health costs are all aimed at easing household financial pressures.

In addition to the general measures for cost-of-living relief, the government has pledged additional support to low-income renters which is expected to affect over one million households.2

One interesting measure that will have a direct effect on property is the Household Energy Upgrades Fund, which will provide low-interest loans for people wanting to upgrade their home’s energy efficiency and reduce their energy bills.

4. Infrastructure commitments

The government has promised $200 million over two years to the Thriving Suburbs Program, which is designed to provide funding for locally-driven urban and suburban capital works that will improve liveability and prosperity.3

At the same time, $150 million over three years will go towards the urban Precincts and Partnerships program, which also aims to improve local communities through transformative urban planning and development.

Both measures are expected to address several challenges facing Australia’s cities, from making it easier for more people to travel between their homes, workplaces and services to designing highly liveable, community-centric, inclusive precincts.

What does this mean for our property markets?

Clearly, the cost-of living relief and Home Guarantee Schemes are likely to have the most immediate impact on our markets as the financial impact of both measures will filter through to the population relatively quickly.

As consumer confidence picks up, so too will confidence in the market, and we may see an uptick in demand from first-time buyers and those hoping to move out of the tight rental market and into a more affordable home, especially as the wider economic climate starts to stabilise over the next few months.

Longer-term changes in infrastructure and building projects could well see different suburbs and regional areas picking up in terms of accessibility and desirability, which may translate into rising property values and a slightly less fragmented market.

Finally, expected wage growth, increased immigration and weakening inflation, bolstered by what many consider to be a healthy federal budget will all contribute over the coming months to an increased demand for homes, and we are likely to see the property pendulum slowly swinging its way back towards growth.

Sources 1 - https://budget.gov.au/content/overview/download/budget_overview.pdf 2 - https://budget.gov.au/content/overview/download/budget_overview.pdf 3 - https://www.infrastructure.gov.au/territories-regions-cities/cities/thriving-suburbs-program

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