Federal Budget 2023-24: Impact on the Property Market

As anticipated, the Budget reflects a juggling act trying to balance inflationary pressures with targeted cost-of-living relief. The 2023-24 Federal budget contained several key announcements for the social and affordable housing sector, including new build-to-rent (BTR) development incentives and an increase to Commonwealth Rent Assistance (CRA).

Below are the key announcements will impact the property sector:

• Build-to-rent tax concessions (BTR): For any eligible new BTR development projects where construction commences after 9 May 2023, the government will increase the rate for the capital works tax deduction (depreciation) to 4% per year from 2.5% per year. Build-to-rent dwellings must offer a lease term of at least 3 years for each dwelling, meaning a predictable income stream for developers but also stable longer-term tenure for tenants. Additionally, it will reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%. 

• Commonwealth Rent Assistance (CRA): An increase in delivered funding of the CRA cap by 15%, costing $2.7 billion over five years commencing from 2022-23 is an attempt to help ease pressure on low-income renters. Renters currently receiving CRA will receive up to $31 extra a fortnight from September.

• Introducing loans for energy-saving upgrades to homes: The Clean Energy Finance Corporation will receive $1 billion from the government to offer low interest home loans, in collaboration with private financial institutions, for energy-saving home upgrades such as double glazing, solar panels etc.

• National housing and Finance Investment Corporation (NHFIC): The Government has committed an allocation of $67.5 million to a one-year extension of the National Housing and Homelessness Agreement to 30 June 2024. Increase of NHFIC by $2 billion to $7.5 billion enables increased support for social and affordable housing through loans to community housing providers. (CHPs). NHFIC’s Investment Mandate will be amended to allocate a minimum of 1,200 homes to be delivered in each State and Territory, within five years of the Housing Australia Future Fund commencing.

• Expanding eligibility to Home Guarantee Schemes:  The federal government currently has three low-deposit home loan schemes: 

• The First Home Guarantee: which enables eligible first home buyers to access a home loan using a 5% deposit without paying lenders mortgage insurance (LMI). It has 35,000 places per year. 
• The Regional Home Guarantee: which enables eligible first home buyers in regional Australia to access a home loan using a 5% deposit without paying LMI. It has 10,000 places per year.
• The Family Home Guarantee: which enables eligible single parents to access a home loan a 2% deposit without paying LMI. It has 5,000 places per year.

The budget has expanded eligibility criteria for all three low-deposit home loan schemes.    

• From 1 July 2023, friends, siblings, and other family members will be eligible for joint applications which had previously been restricted to people that were married or in a de-facto relationship. 
• The new budget qualifies non-first home buyers who have not owned a home for 10 years for the First Home Guarantee and the Regional Home Guarantee 
• Single legal guardians of dependants may now qualify for the Family Home Guarantee.
• Permanent residents may now also qualify for the Family Home Guarantee.

How Effective Will These New Measures Be?

In the current environment, while home prices in most markets are slightly lower now than they were 12 months ago, borrowing costs are higher and prices have fallen by much less than the calculated shift in borrowing capacities would imply.  Affordability has deteriorated strikingly, to the worst levels since the 1990s on some measures, and repayments are now very high relative to history in real terms. These conditions are challenging for first-home buyers, for whom the most significant hurdle to home ownership is the deposit burden. The expanded Home Guarantee Scheme aims to tackle this issue.  However, the allocation for each Guarantee scheme has not increased. Many first-home buyers will still miss out given the limited allocation cap of 35,000 places limiting effectiveness of the scheme while still bringing forward demand with much less change in the supply of housing to match.

The increase to Commonwealth Rent Assistance will be helpful as it provides an additional revenue to support existing social and affordable housing. Although while this budget will give renters some relief, the increase in payments is insubstantial relative the uprise in rents across markets and rising cost of living.

While encouraging increased investment and construction of build-to-rent projects won’t help with the current pressures and low supply of rentals, advancing the build-to-rent sector could help increase rental supply in the long term.