Every year around budget time, we tune in to listen for any federal policies that may affect property investment.
Usually, government initiatives are focused on supporting owner occupiers and, specifically, first home buyers. There are promises about boosting the supply of affordable housing, or there are grants to help young buyers get into the market (generally if they are buying a brand new property).
Often, the initiatives announced have the best intentions, but remember that federal policies actually have to be facilitated and implemented by the states, each of which have their own laws and priorities to consider. A great example is any announcement to build new homes, because there is not just state government to consider, but another layer of government in the form of local councils.
With this in mind, let’s look at some of the most recent announcements that will kick into gear in the new financial year.
1 million homes from 2024
One of Federal Labor’s key policies on housing was to build 1 million homes over 5 years. Great idea, because the country is already suffering from a major supply shortage. However, it will come down once again to states, local councils and building companies to actually make it happen.
And that’s where it only begins to get difficult. Many of the best builders in each state are busy working on government infrastructure projects; just look at Brisbane where it’s all hands on the deck to deliver projects ahead of the Olympics in 9 years’ time.
Meanwhile, a number of residential building companies are going bust due to supply issues, high cost of materials and labour shortages.
And even the projects with builders attached can become derailed if enough local residents in their area complain to council.
Already, the Housing Industry Association (HIA) has warned the planned 200,000 homes a year will be closer to 185,000, noting that the full effect of rising interest rates will make the situation worse before it gets better.
The HIA also said the targets were nowhere near high enough anyway, with Australia set to be more than 100,000 homes short of where it needs to be by 2027.
The other great shortage the government is facing is in the rental property market.
Another big policy was support for the build-to-rent sector, which sees property constructed for the purpose of housing long term rental tenants. The developer keeps the property once it’s finished and rents it out.
The federal government support in the budget centres on reducing Managed Investment Trust Withholding Tax from 30% to 15%, to encourage greater levels of investment in the space, and also to increase the rate of depreciation claimable to 4%.
A report commissioned by the Property Council of Australia claimed this policy could help add 150,000 homes over the next 10 years.
Again, sounds great, but the same obstacles are in the way as for the rest of the construction sector. Who will build these housing projects? Are there enough financially viable builders around and do they have the time and resources? Time will tell.
Social and affordable housing
Rental assistance will be boosted by 15%, or up to a maximum $32 a fortnight for eligible tenants.
This may help some folk meet their rent payments, but when you consider that rents have gone up by around 25% in recent times, they are still likely worse off in real terms.
The government has also raised its cap on finance for community housing organisations, aiming for the delivery of 1200 social and affordable homes over five years.
What does it all mean for investors?
In short, not much. The new initiatives will hardly turn a chronic undersupply of property into an oversupply. Rents are expected to continue rising over the next couple of years, while values have now had consecutive months of growth since the beginning of 2023. Vacancy rates are still anchored around the 1% mark across Australia and the affordable end of the rental market, which is where B.Invested clients like to ply their trade, will continue to experience high levels of competition for the stock available.