The Rudd government’s first Federal Budget has prompted a mixed response from real estate experts.
Several Budget initiatives were applauded by property industry leaders, but the general sentiment is that they won’t do enough to invigorate the real estate market.
“The Budget will have some effect on the property market, however it’s just one in a number of forces influencing the current market outlook,” said Colliers International national research director Rory McLeod.
In the lead-up to the Budget announcement, two areas of concern for investment experts were the residential rental property shortage and increasing weekly rents.
“Investor activity in the residential property sector is ebbing. From the rental crisis in Melbourne, Sydney, Brisbane and Canberra we’ve seen how heavy we are in investor interest,” said Macquarie Bank chief economist Richard Gibbs.
The National Rental Affordability Scheme, which is aimed at encouraging investors into the residential property market, therefore drew cautious praise. Under the scheme, any investor who rents out a new property to low-income tenants at 20% below the market rate will receive $8,000 pa for 10 years.
“The National Affordability Scheme seems like a good incentive to attract investors to provide more housing for low-income tenants; however, it will obviously be weighed up against renting at market prices to see what the true end benefit will be,” said McLeod.
Another of the Budget’s main talking points was the Housing Affordability Fund, which will offer up to $30m to develop an electronic development assessment project to speed up planning approval.
“If effective, the Housing Affordability Fund should improve processing times and reduce holding costs for developers, which should go some way to balancing out the demand-stimulating actions,” said McLeod.
Real Estate Institute of Australia (REIA) president Noel Dyett lent his support to government initiatives on rental and housing affordability, but said that more immediate action is needed.
“The REIA welcomes confirmation of the funding commitments for the National Rental Affordability Scheme and the Housing Affordability Fund, as promised in the 2007 election. However, although there are targets for 2008–09, these are largely medium- to long-term initiatives which won’t immediately address the problem of home loan and rental affordability,” said Dyett.
In addition to addressing rental affordability and speeding up the supply of housing, the government also aims to help struggling first-time buyers with its Enhanced First Home Saver Accounts.
The first $5,000 of individual payments to a Home Saver Account will attract government contributions of 17%, earnings from the account will be taxed at just 15%, and withdrawals will be tax-free, provided they go towards buying or building a first home.
The REIA initially gave the saver account scheme a warm reception, but it has once again issued a stark warning that more short-term action on housing affordability is necessary.
“The REIA applauds the government’s commitments for the First Home Saver Accounts. The accounts will help promote a culture of savings, and assist potential homebuyers to achieve their home ownership goals. It should be noted that the benefits of this scheme won’t be perceived by homebuyers for another four years, therefore the government still needs to address housing affordability in the short term,” said Dyett.
McLeod pointed to increasing construction costs as the main problem preventing first-time buyers from achieving their dreams of home ownership: “The real issue is lowering costs imposed on the supply side. If demand is stimulated but costs are left constant, it’s just going to force prices up.”
“Investor activity in the residential property sector is ebbing, and some of this is due to the fact that there’s no reduction in construction costs. Housing investment will remain in the doldrums over the next 12 months. There’ll be a significant reduction in dwelling activity, especially in the Eastern Seaboard,” added Gibbs.
Andrew Bird, director of property and chief investment officer with AMP Capital investors, said he believes more could have been done in the Budget to reduce inflation.
He added that he doesn’t believe that investors will be flooding the property market anytime soon. “In this Budget it would have been nicer to see a stronger attack on inflation, and therefore a stronger ability to lower interest rates. We should foresee a period where there isn’t going to be that much turnover, while price adjustment takes place. When this happens, those people with confidence will be buying with limited downsides,” he said.
