May 13, 2021 by Dymphna

A property-friendly budget

Tuesday’s budget contained a few pieces of good news for property

I’m still getting across everything Tuesday’s budget means for property, but on the whole its looking pretty friendly.

The Coalition’s general approach to housing policy is to not do anything that might put property prices at risk (e.g scrapping negative gearing). Instead, the focus is on supporting certain segments and tilt the playing field a bit more in their favour.

In the early days, this was just flat-out cash for first home buyers through First Home Owner Grants (FHOGs). More recently, it’s become a bit more targeted, with the government back First Home Loan Deposit Scheme aimed specifically at the deposit hurdle.

(That said, the HomeBuilder grants are basically just FHOGs targeted at new builds.)

Anyway, Tuesday’s budget saw the Coalition continue this line of attack, with a number of targeted support measures:

Single-parent support

I’m a huge fan of this particular piece of policy. Known as the ‘Family Home Guarantee’, the government will guarantee 18% of a home loan for 10,000 eligible single parents, whether they are first home buyers or previous owner-occupiers.

Effectively, single parents will be able to buy property with a 2% deposit!

I think this is great policy because we know that housing insecurity leads to worse life-outcomes. A child constantly on the move will struggle to do well at school.

So helping single mothers and single father’s get a stable roof over their heads is great social policy.

HLDS Extended by 10,000 places

The government will extend the first home loan deposit scheme (for new homes) by 10,000 places.

The first round of the First Home Loan Deposit Scheme (FHLDS), was introduced at the start of 2020, and was very quickly taken up. It’s 10,000 places were pretty much fully subscribed in a less than two months.

After Covid hit, the government added another 10,000 places.

Now, the scheme is being extended, but rebranded as the “New Home Guarantee” and will now be limited to new builds.

This also makes sense. Increasing demand without increasing supply pushes up prices, and that was one of the major criticisms of the original FHOGs.

So making sure this measure supports new construction is good policy.

The only thing I worry about here is that the construction industry is stretched thin right now. With the HomeBuilder program, there was a massive ramp up in new construction projects.

Adding fuel to this fire may just push up construction costs, which will feed through into higher housing costs.

More Super Access

The First Home Super Saver Scheme was announced in the 2017-18 Budget. FHBs could make voluntary contributions of up to $30,000 from their super to use as a deposit.

The latest budget increases the cap to $50,000.

That’s pretty reasonable.

Downsizer Contribution Extended

The downsizer contribution was also first announced in the 2017-18 Budget. The measure allows older Australians to make a tax-free contribution to their super of up to $300,000 (each) from the proceeds of selling their home, without being counted toward the contribution cap.

From July 2022, Australians 60 and older (as opposed to 65 and older) will be able to access the scheme.

On paper this is a good idea. We want a bit of flexibility in the housing market. We want to make sure that people aren’t financially penalised for moving into more appropriate housing.

That said, people often underestimate how big it is to up and move house, and since it came in three years ago, only 22,000 people have made use of it.

So it’s a good idea, but might not have all that much of an impact.

Infrastructure spend

The other thing worth noting is that there’s a lot of big-ticket infrastructure spending in this budget.

Infrastructure changes the nature of land (makes it more useful, generally), and that changes its value (normally for the better).

So a big infrastructure budget like this while will have a downstream positive impact on property prices.

So on the whole, this is a property friendly budget.

There’s nothing in here that’s going to dampen the current housing boom.

And some of the measures here should even give it a kick along.