2023-24 Federal Budget: What’s new for housing supply, affordability, and investment

Federal treasurer Jim Chalmers spoke of Australia’s housing crisis during his second Budget speech to parliament on May 9, offering a platter of solutions to ease pressure on renters, first home buyers and investors, to pave the way for new home builds while not adding to inflationary pressure.

API Magazine asked industry experts for their views on the Budget measures impact on the property sector.

What the Budget delivered

The Budget outlined key areas to create more affordable housing, help more Australians into home ownership, invest in infrastructure and support growth in regional areas.

The measures promise to:

• Raise Commonwealth Rental Assistance by 15 per cent at a cost of $2.7 billion over five years.
• Build one million, well-located homes from 2024 through the National Housing Accord
• Reduce from 30 to 15 per cent the withholding tax rate for eligible fund payments from managed investment trusts attributed to newly constructed, conditional build‑to‑rent developments
• Increase the capital works tax deduction (depreciation) rate from 2.5 per cent to 4 per cent per year and increasing the after-tax returns for newly constructed build‑to‑rent developments.
• Increase the National Housing Finance and Investment Corporation's liability cap by $2 billion to a total of $7.5 billion, supporting more lending to community housing providers for social and affordable housing projects.
• Expand eligibility for the First Home Guarantee and Regional First Home Guarantee to any two borrowers beyond married and de facto couples, and non‑first home buyers who have not owned a property in Australia in the preceding 10 years and will include the currently 3 million migrants holding Australian Permanent Residency (ABS, August 2021).
• Transform cities and suburbs through the $159.7 million urban Precincts and Partnerships Program.
• Invest in community and economic infrastructure that enhances liveability and prosperity in suburban communities through the $211.7 million Thriving Suburbs Program.
• Increase the guaranteed liabilities of the National Housing Finance and Investment Corporation (NHFIC) by $2 billion, to support more financing through the Australian Housing Bond Aggregator to support more social and affordable housing.

Expert reactions to the 2023/24 Federal Budget

Hayden Groves, President, The Real Estate Institute of Australia

The Treasurer has attempted to deliver a Budget that fights off inflation and help Australians that are struggling in the context of global economic conditions and anticipates that inflation will return to RBAs target band by 2024-25 with inflation to reduce to 3¼ per cent next year.

We especially applaud the budgeted increase of Commonwealth Rent Assistance (CRA) of 15 per cent and while CRA was a much-needed measure, housing supply at scale still needs to be addressed. 

The widely previewed commitments of the Home Guarantee Scheme rule changes, recommitment to the Housing Accord, an extra $2 billion for the NHFIC mandate and taxation rule changes for the niche Build-to-Rent sector are welcome but will not in themselves address the elephant in the room which is building more homes for Australians.

We hope the long-awaited National Plan for Housing and Homelessness puts all options on the table to truly unlock housing supply and the hotly debated Housing Australia Future Fund finally gets off the ground.

With inflation expected to peak by 2024-25 with a return to more normal economic conditions, it is a budget that should meet the RBA’s test of ‘not too hot and not too cold’ in terms of inflationary impact and thus their interest rate decisions.

Mike Zorbas, Chief Executive, Property Council of Australia

The real story of this budget is the five-year net overseas migration (NOM) total of almost 1.5 million people out to 2027.

Skilled migrants are essential across most sectors of our economy and a strong influx will benefit the property industry and underpin our attractiveness as a global investment destination. 

At the same time, these are large numbers of new people we need to accommodate so without proper state housing targets, improved planning systems and well-located housing choices for students, retirees, and renters we will see the national housing deficit blow out further.

We need a redoubling of national and state commitments to better planning and housing delivery starting now.

Levelling the tax playing field for build-to-rent projects is a significant one and will allow a welcome new asset class to grow into its full potential across Australia, unlocking up to 150,000 new homes and relieving pressure in the rental market over the next decade. A powerful win for good public policy after our many patient years of advocacy.

Nerida Conisbee, Chief Economist, Ray White Group

There is a shortage of properties to rent, as well as buy so, unfortunately the Budget measures to fix housing supply were limited, and there was nothing to fix the challenges in the construction sector.

Another emerging problem is house price growth has started up again. Despite eleven interest rate rises, the shortage of homes is moving from a rental problem to a pricing problem.

Change to build to rent will go some way to addressing the rental supply shortage but it is still an emerging source of rental properties. Most rental properties (well over 80 per cent) are supplied by mum and dad investors. An incentive like Home Builder but available only to investors would be a quick way to address rental shortages.

Although construction material prices are coming down, labour shortages are still apparent. Ideally the lift to the international migration cap will address this. Once we start to see construction prices stabilise, it will mean more normal levels of housing supply. If the Housing Australia Future Fund is approved, this will provide an additional push.

Max Shifman, President, Urban Development Institute of Australia

UDIA National continues to press the Government to incentivise and coordinate supply and access to housing across the spectrum, from home ownership and private rental to affordable and social housing. 

UDIA National has pressed for enhanced home ownership initiatives to be coordinated with measures to boost supply and place downward pressure on prices. We have been actively championing freeing up Build-to-Rent with measures to make projects viable at more affordable rates. A key pillar was to equalise withholding tax rates for Build-to-Rent so the projects can attract international institutional money. 

A core pillar of UDIA National remains greater affordable and social housing supply together with increased participation of private housing providers. The Government’s further housing initiative is important to build supply and build a greater role for private housing providers across the spectrum. 

Jocelyn Martin, Managing Director – Industry and Policy, Housing Industry Association

While necessary, the Government’s investment in improving the supply of social and affordable housing will do little to put downward pressure on rental costs and housing affordability in the wider market.

Housing affordability challenges facing Australian households can only be addressed if the supply of housing can align with demand. HIA estimates that Australia needs 1.66 million additional houses by 2030, just to keep up with the demand from population growth.

Tackling housing affordability starts with making the supply of housing a national priority. Improving affordability can enable more households to own their own homes.

If housing affordability is to be improved, we must see further collaboration between all levels of government with a concerted focus on increasing the housing supply.

Denita Wawn, CEO, Master Builders Australia

With the challenge of rising interest rates and high inflation, the federal government has failed to provide big picture fiscal policy measures to tackle this head-on and instead opted for a potential inflation-building pathway.

Master Builders has previously called for measures to reduce unnecessary regulation and red tape on businesses to improve their capacity to deliver projects in a cost-effective way.

The budget has missed a chance to allow for more favourable outcomes when it comes to the cost, quality and quantity of building and construction output.

The pain of higher interest rates and high inflation is real and if we do not get it under control we could be in for a lengthy period of pain and depressed construction activity.

With rental inflation at record highs, rental relief will assist those who are doing it tough in some areas of the market. However, mum and dad investors and business are being left to absorb a lot of the economic shocks.

If we want shovels in the ground to meet the one million homes target from 2024, more action is needed now.

Adam Crowley – RSM Australia National Leader, Property and Construction

This budget was a missed opportunity – while there was a flurry of announcements around affordable housing and build to rent initiatives, the Budget did not address how the construction sector, with so many facing financial difficulty, would be able to build what is being funded. There’s the sense that the government could have done more.

Money put towards skills and workforce improvement and TAFE will hopefully provide much needed skilled labour to the property and construction sector.

The Government acknowledges that material and labour constraints affecting the residential construction sector have limited the capacity for housing supply to keep up with growing demand. Greater support for the construction sector is needed, whether that be access to grants, offsets, or other financial assistance to builders and without greater assistance, rents will continue to increase, and housing affordability will continue to deteriorate.”

Measures our survey respondents suggest included government contracts incorporating rise and fall mechanisms as well as more reasonable risk allocations, banks working with developers to help improve housing supply, continued investment in rural infrastructure and skilled migration visas specific to construction for both blue collar and white-collar roles. These issues could have been better addressed in the Budget.

James Morley, Professor of Macroeconomics, University of Sydney

What matters with the budget is an overall net change in new spending versus new taxes. On this score, the budget is slightly expansionary, and the RBA is likely to respond to that by having a somewhat greater bias towards further interest rate increases to offset the macroeconomic effects of the stimulus.

The fact that interest payments on future debt are projected to be lower, given the surprise improvement in tax revenues given higher nominal GDP growth, provides further room for the RBA to raise rates without worrying about the fiscal implications.

In terms of rents as another source of persistent inflation over the next couple of years, the increased rental support in the Budget does not do much to lessen that. The initiatives to boost supply in rental housing could obviously help in principle but are likely to take a long time to have much effect on rents, so, I don’t see these initiatives as particularly relevant for the RBA’s decisions over the next year.

Dr Andrea Blake, Senior Lecturer, School of Economics and Finance, Queensland University of Technology

Further incentivisation of the build to rent scheme are welcomed in the budget as this is likely to become an increasingly important sector of the property industry. The private sector has always been a significant provider in affordable rental accommodation and wider uptake of this scheme will provide increased security of tenure to long term renters.

It was encouraging to see an emphasis on stabilising inflation and rising interest rates in the budget. Although this does not offer an immediate solution to cost of living issues for many, it does provide some surety to the market and promotes investor confidence, which has been heavily undermined by interest rate rises, inflation and construction risk.

Bobby Haeri, Co-Director, The Investors Agency

The federal government has predicted inflation rates can be expected to fall from 6 per cent to 3 per cent, if the predictions are accurate, we'd hope the reserve bank would follow suit with lowering interest rates, as the need for such strong securitisations eased up.

Coupling this with an aim to build 1 million more homes in what's been described as "well located areas" is assumed to support the wave of immigration entering Australia for the next two years as well as those in lower income earning areas.

We are seeing tax breaks for investors who will build to rent, homeowner schemes expanding and rental assistance for those in need. All these announcements are pro-property investing and it’s promising to see that the government has acknowledge the importance of property investors in this country. I believe with over 350,000 people entering the country annually over the next couple of years and interest rates at or near their peak, we will see a promising few years in the property sector within Australia.