Treasurer announces major boost to housing stocks
Australian Treasurer Jim Chalmers has announced a series of reforms and initiatives under the 2022 Budget, with a significant focus on affordable housing and the rising cost of living.
In pre-budget announcements, the Treasurer said inflation, which reached 6.1% over the year to the June 2022 quarter, would be the “primary influence” of Tuesday evening’s Budget, with projections showing it would reach 7.75% over 2022.
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Chalmers (pictured above left) delivered the Labor government’s first budget since 2013 on Tuesday evening. It focused on cost-of-living relief, building economic resilience and “repairing the budget” to pay for what’s important.
The government’s five-point strategy aimed at tackling the high cost-of-living includes $4.7bn for childcare subsidies, expanded parental leave ($531.6m), more affordable housing (National Accord $350m), a reduced maximum cost for general patient co-payments, and wage increases for low paid workers.
Budget documents show a projected deficit of $36.9bn for the 2022/23 financial year. Gross debt as a share of the economy is expected to be 37.3% of GDP (5.1 percentage points below pre-election estimates).
Under the Budget, a new national Housing Accord is set to increase the number of affordable homes across the country. The government has set a target to deliver one million new, well-located homes from mid-2024 to 2029 – with its contribution $350m.
In his Budget speech, Chalmers said most of the supply for the Housing Accord would need to come from the market, rather than the government, but that the government would play a lead role in coordinating and kick-starting investment.
“To get the Accord started, this Budget commits an initial $350 million in additional funding for another 10,000 new affordable homes, on top of our existing commitments,” Chalmers said.
“This will be delivered through an ongoing funding stream to help cover the gap between market rents and subsidised rents – making more projects commercially viable.”
State and territory governments would build on the government’s commitment, adding up to an additional 20,000 new affordable homes in total, Chalmers said. Along with local governments, they would tackle supply problems caused by land release and zoning policies.
In addition to the national Housing Accord, the government plans to develop a national housing and homelessness plan, in consultation with states and territories, and other stakeholders.
Returns from the Housing Australia Future Fund ($10bn investment) would be used to build 30,000 new social and affordable dwellings over five years. An expansion of the remit of the national housing infrastructure facility will help to unlock a projected 5,500 new dwellings.
The Regional First Home Buyer Guarantee (10,000 places per year) and Help to Buy Scheme (government equity contribution) would continue.
The government would also commit $46.2m to expand the Defence Home Ownership Assistance Scheme, supporting veterans and Defence Force members to buy a home through monthly subsidies on mortgage interest payments.
Additionally, it would extend the exemption of home sale proceeds from pension asset testing by 12 months and expand access to make downsizer contributions to superannuation for people aged 55 to 59.
Shore Financial CEO Theo Chambers (pictured above centre) commended the government’s move to provide one million new well-located homes over the next five years.
“Not only does this hopefully help the supply issue in certain housing markets, but it will hopefully also create jobs,” Chambers said.
Chambers said the biggest takeout from the Budget for him personally was the $7.5bn cost-of-living relief package.
“[This] should help households feeling the pinch of inflation and increased living costs. It’s also crucial to help workers stay in the workforce, so expanding childcare help and parental leave aids this initiative,” Chambers said.
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Commenting on inflation as a key driver of the Budget, Chambers acknowledged inflation was “at the forefront” of the Treasurer’s and the RBA’s focus, as countries across the world hike interest rates aggressively in a bid to bring it back towards target. It remains important to balance inflationary pressures and consumer spending, he said.
“Personally, I feel the economic pain of higher interest rates hasn’t kicked in yet. The share market has just priced in future expectations, but the economy locally is yet to feel the proper pinch,” Chambers said.
Once inflation moves back towards the RBA’s 2% to 3% target range, interest rates may start to decrease, as the government sees the need to restimulate the economy, requiring a constant “balancing act” from both the Treasurer and the RBA, he said.
Business NSW chief executive Daniel Hunter (pictured above right) acknowledged the government’s commitment to putting fiscal repair at the centre of its budget, which focused on the challenging outlook for businesses.
The focus on housing supply and affordability would be welcomed by businesses, particularly those in regional NSW finding it difficult to attract works due to housing constraints. But he warned there was a risk the Budget would be overshadowed by planned industrial relations changes, due to hit federal parliament later this week.
“With such a challenging economic environment laid out in this Budget, the last thing businesses need is both the looming threat of industry-wide bargaining supported through crippling strike action and spiralling wage costs,” Hunter said.
Business NSW encourages the government to consult with the business community about how it would achieve its goal of incentivising bargaining without resorting to regular strike action industry-wide, he said.
In a post-Budget report compiled by NAB economists, chief economist Alan Oster acknowledged that the $37bn deficit forecast in the Budget was down from an expected $80bn as recently as April.
But he warned that better-than-expected outcomes in 2022/23 and 2023/24 resulting largely from higher community prices and large employment and wage gains were unlikely to continue.
“These impacts are expected to wane and, in the medium-term, slower assumed trend growth and rising NDIS and debt servicing costs see the budget projected to remain in deficit well beyond 2030,” Oster said in the report.
In the context of high inflation, NAB estimates suggest the fiscal impact on growth would be neutral over the next two years.
“In the absence of a significant structural tightening, monetary policy will likely remain the key tool in moderating demand and inflationary pressure in the near term, pointing to some upside risk on our rates profile,” Oster said.
Budget documents show the government expects the local economy to grow by 3.25% over 2022-23, slowing to 1.50% in 2023-24, as global challenges and cost-of-living pressures weigh on households and the economy.
It expects employment growth to ease, but that the unemployment rate would stay low as jobs continue to be created.
