May 11, 2023 by Dymphna

What will the budget do for property prices?

It’s not going to be massive, but there’s a little good news for property prices here.

Ok, so does this week’s budget do anything to the outlook for property?

The short answer is not directly.

This is one of those rare budgets that doesn’t include anything explicitly for housing. There were no new first home owner grants or anything like that.

And I’m sure the Albanese government would have loved to get it’s $10bn housing fund up, but the Senate wasn’t playing ball, so that’s on the side-lines for now.

But there’s a couple of quick thoughts.

The first is that, despite the headline surplus, this is a stimulatory budget. It’s pumping more money into the economy than it’s taking out.

(And to be fair, many budgets have been worse. Chalmers is banking 80% of the revenue windfall he’s received – many Treasurers past would have been tempted to blow that on pork and giveaways. So credit where credit’s due.)

But at the end of the day, it’s still putting the foot on the accelerator at a time when inflation is just too high.

Given the rubbery way that numbers are presented – with so-called ‘off-budget spending measures’ and so on, it’s kinda tricky to put an exact number on this.

John Kehoe, the AFR’s economics editor reckons it’s a spending package worth about $12 billion.

In normal times, that’s pretty tame.

But in an inflationary context, where the government giveth, the RBA must taketh away.

Chris Richardson’s rule of thumb is that for $6bn the government giveth, the RBA must hiketh by 25 basis points.

So, other things being equal and compared to a net-neutral budget, interest rates are going to be 0.5% higher than they otherwise would be.

That has a small, but non-zero impact on property prices.

The other thing that was announced was an increase to rent-assistance for low income earners.

Individually, it’s not massive. I can’t find the figures now. Like $10 a week.

But this is the thing. It’s a demand side measure. It puts money in renters’ pockets.

But in a tight rental market – and remember this is the tightest rental market in our nations history – landlords set the price.

And what people are willing and able to pay is determined by how much money they have in their pocket.

Put more money in their pocket and their able to charge more.

And so landlords will charge more.

And rents will go up.

And since rents flow through into house prices, house prices will go up.

Again, this is pretty small-fry stuff. Given the complexity of the property market, I don’t expect you’ll be able to pick out the impact from all the noise.

But still, on balance, it’s a net positive for the outlook for property prices.