The Rudd Government’s 2007 election commitments have been enshrined in L.A.W. — law. Funding to improve the plight of housing supply could not come a moment sooner. Rising interest rates have constrained both supply and demand and added to inflationary pressures in the rental market. The lack of new supply to meet underlying demand and a strong migration flow (particularly in recent years) is adding further price churn to an already ‘curdled’ market.
The pick of the now budgeted programs is the $500 million Housing Affordability Fund (HAF), a measure offering federal funding for infrastructure necessary to support new residential development. Proposals for HAF funding will be competitively assessed. The HAF provides a $10,000 financial reward to state or local governments in return for better outcomes from planning and development application processes.
First Home Saver Accounts, worth $1.178 billion, provide a reward for ‘sweat equity’. Some have suggested the measure will add to inflationary pressures and irresponsible lending practices. Most reputable economists, however, will take issue with suggestions that saving adds to inflationary pressures.
The initiative encourages responsibility in home lending, providing incentives for aspiring home owners to save for a deposit. The alternative to such an initiative is the proliferation of 100+% and interest-only home loans. The accounts could provide a ‘lead indicator’ of demand allowing supply to be adjusted or at least planned.
$10 million has also been found for financial services to assist with financial counselling to assist Australians facing mortgage and rental stress.
The National Rental Affordability Scheme worth $603 million (over its ten year operation) is the most ambitious of the housing programs. The scheme is aimed at creating an institutional market for residential investment. Mum and Dad investors have thus far been the primary drivers of investment in the private rental market, however, a “technical discussion paper” (issued a fortnight ago) excludes Mum and Dad from investing directly. The cost and availability of capital and possible return on investment will determine the scheme’s success. Perhaps a way to test the viability of the scheme would involve use of funds held in the Future Fund?
With purchasers and investors avoiding the market, perhaps there is also a need to look more closely at targeted demand measures. Doubling the depreciation allowance for positively geared investment (not included in the Budget) is a measure worth a second look.
The Budget is a big step in the right direction for housing. It provides recognition that housing is a social and economic issue, requiring all levels of government to do some heavy lifting.