LJ Hooker Group Federal Budget 2023-24

Federal Budget

A Budget Designed to Help with Cost-OfLiving Pressures but Not Stoke Inflation

Set against a challenging economic backdrop of eleven cash rate hikes since May 2022 and an annual inflation rate of 7%, the 2023/24 Federal Budget is focused on relieving the mounting cost-of-living pressures that households and businesses currently face.

The budget outlines a range of initiatives, including reductions in healthcare costs, increased income support payments, electricity bill relief, and incentives for renewable energy investment, all aimed at achieving the government’s objective.

However, despite these measures, the budget falls short in addressing the critical issues plaguing real estate market’s. With a strong population growth projection, surging housing costs, an undersupply of rental accommodation, and a bleak outlook for new home construction, the budget provides little new initiatives to help stimulate supply or ease rental affordability issues in the short term.

Budget at a Glance

• A budget surplus of $4.2b in 2022/23 and deficit of -$13.9b in 2023/24.

• Net overseas migration of 400,000 in 2022/23 and 315,000 in 2023/24.

• Up to $500 in electricity bill relief for households and up to $650 for businesses.

• $11.3 billion to provide a 15% pay rises for aged care workers.

• Tripling doctor bulk billing incentives.

• Expanding eligibility for Single Parenting Payments.

• Increasing the base rate of Jobseeker.

• Extending small business instant asset write-off.

• Introducing the Small Business Energy Initiative to help businesses with energy efficiency.

Federal Budget 2023/24

Budget Measures for Housing

• Expanding the eligibility to Home Guarantee Schemes.

• Introducing tax breaks to encourage more build-to-rent development.

• Expanding social and affordable rental housing.

• Increasing Commonwealth Rent assistance.

• Introducing loans for energy-saving upgrades to homes.

Federal Budget Position

Budget Economic Forecasts

Source: The Commonwealth of Australia.

Federal Budget Measures That Will Directly Impact Property Markets

Home Guarantee Schemes Expanded

The 2023/24 Federal Budget has expanded the eligibility criteria for the previously announced Regional First Home Guarantee, Family Home Guarantee and First Home Guarantee schemes. These programs see the government act as a guarantor on the loan of an eligible participant, enabling them to purchase a home with a smaller deposit and without the need to purchase lenders mortgage insurance.

First Home Guarantee & Regional First Home Buyer Guarantee

The First Home and Regional First Home Guarantee schemes assist eligible participants to purchase a new or existing home. Under this scheme, part of the buyer’s home loan will be guaranteed by the government, enabling them to purchase a home with as little as a 5% deposit. Each year, a total of 35,000 places are available under the First Home Guarantee scheme and 10,000 places are available under the Regional First Home buyer scheme.

The 2023/24 budget expands on the eligibility criteria. From 1 July this year, 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, in addition to single applicants. This scheme will also become available to eligible borrowers who are Australian permanent residents, in addition to Australian citizens. The guarantees will also be expanded to non-first home buyers who haven’t owned a property in Australia in the last 10 years. This will support those who have fallen out of homeownership, often due to financial crisis or relationship breakdown.

Federal Budget 2023/24

Family Home Guarantee

This measure enables a single parent with dependants to purchase an existing home or build a new home with a deposit of as little as 2%. There are 5,000 places available each year under this scheme.

Eligibility for the Family Home Guarantee will be expanded from single parents with dependents to eligible borrowers who are single legal guardians of children such as aunts, uncles and grandparents. It will also become available to eligible borrowers who are Australian permanent residents, in addition to Australian citizens.

The Home Guarantee Schemes allow participants to purchase a home with a deposit of as little as 2%.

Social and Affordable Housing

The 2023/24 Federal Budget allocates an extra $2 billion towards the expansion of social and affordable rental housing. This funding boost will allow the National Housing Finance and Investment Corporation (NHFIC) to increase its liability cap from $5.5 billion to $7.5 billion effective from 1 July 2023. By doing so, NHFIC will be able to offer more affordable and long-term financing options to community housing providers, enabling them to develop additional social and affordable rental properties.

Build-to-Rent

Build-to-rent developments are purpose-built residential properties intended for long-term rental by tenants and often owned and funded by large institutional investors, such as superannuation funds. The 2023/24 budget proposes changes to the tax regime for build-to-rent projects, including an increase in the depreciation rate from 2.5% to 4% per year for eligible new build-to-rent projects, with construction commencing after 9 May 2023.

This measure will apply to build-to-rent projects consisting of 50 or more apartments or dwellings made available for rent to the public. The dwellings must be retained under single ownership for at least 10 years before being able to be sold and landlords must offer a lease term of at least three years for each dwelling

Additionally, the withholding tax rate for foreign residents on income from newly constructed residential build-to-rent properties after 1 July 2024, will be reduced from 30% to 15%. These changes are aimed at boosting build-to-rent projects in Australia. The reduced managed investment trust withholding tax rate for residential build-to-rent will apply from 1 July 2024.

Federal Budget 2023/24

Incentivising build-to-rent projects will help encourage more rental accommodation to be built.

Housing Energy Upgrades

The budget has allocated $1.3 billion to establish the Household Energy Upgrades Fund via the Clean Energy Finance Corporation to create low-interest loans and fund upgrades to social housing to improve energy performance.

The Fund will direct $1 billion to fund 110,000 low-interest loans for home upgrades that save energy, in partnership with private lenders. The Fund will also provide $300 million to states and territories to make energy performance upgrades to social housing. A further $36.7 million will be provided to develop further initiatives to improve energy performance, including expanding and modernising the Greenhouse and Energy Minimum Standards program and the Nationwide House Energy Rating scheme.

Increase to Commonwealth Rent Assistance

The government has allocated $2.7 billion, over five years, to increase the maximum rates of Commonwealth Rent Assistance by 15%. There are currently 1.1 million households receiving Commonwealth Rent Assistance and this measure takes the maximum fortnightly payment from $208.74 to $240.

Homelessness

The Budget allocates an extra $67.5 million to states and territories via the National Housing and Homelessness Agreement in 2023/24. This funding will assist homelessness services as the government works to develop a new National Housing and Homelessness Plan.

Federal Budget 2023/24

Urban Development

The Government will provide $687.4 million over six years from 2022/23 for a national approach to sustainable urban development in Australia. Funding includes:

• $305 million for the Macquarie Point Precinct and University of Tasmania Stadium to deliver urban renewal projects in Hobart and Launceston.

• $211.7 million to establish the Thriving Suburbs Program to provide grants for community infrastructure in urban and suburban communities through a competitive grants program.

• $159.7 million to establish the Urban Precincts and Partnerships Program to support investment in place-based priorities of local urban communities.

• $11 million to establish the Cities and Suburbs Unit within the Department of Infrastructure, Transport, Regional Development, Communications and the Arts to deliver the National Urban Policy and the regular State of Cities report.

Reminder: Mini Budget October 2022

In October 2022, the government announced two key policies to lift the supply of new homes, as well as social and affordable dwellings, as part of their first budget after being elected:

1. Housing Australia Future Fund - $10 billion in the newly created Housing Australia Future Fund, to be managed by the Future Fund Management Agency. The aim is to generate returns to fund the delivery of 30,000 social and affordable homes over five years.

2. National Housing Accord – A new accord struck between Federal, State and Local governments, institutional investors, superannuation funds and the construction industry will aim to build one million new homes over five years from 2024.

Infrastructure

The Federal government has committed to an independent 90-day review of the current $120 billion infrastructure program. As such, there is limited new major infrastructure projects as part of the 2023/24 budget.

The budget does allocate $1.8 billion, over 10 years, to several existing priority infrastructure projects. These include:

$1.1 billion in 2032/33 to continue existing road maintenance and safety programs, including;

• $500 million for the Roads to Recovery Program.

• $350 million for national road network maintenance.

• $110 million for the Black Spot Program.

• $85 million for the Bridges Renewal Program.

• $65 million for the Heavy Vehicle Safety and Productivity Program.

• $18 million for transport research organisations and innovation projects.

• $361 million over 8 years from 2023–24 for infrastructure projects in New South Wales, including safety upgrades on the Bells Line of Road and Nowra Bypass planning.

• $200 million over two years from 2023–24 for the Major Projects Business Case Fund to support the planning of land transport infrastructure projects.

• $60 million over 3 years from 2023–24 to continue supplementary local road funding in South Australia.

• $3 million in 2023–24 to undertake a feasibility study for an intermodal terminal in Parkes, New South Wales to support the Inland Rail program.

The budget also allocates up to $3.4 billion over 10 years for venue infrastructure investment to support the delivery of the Brisbane 2032 Olympic and Paralympic Games. This includes up to $2.5 billion for the development of Brisbane Arena and up to $935 million towards 16 new or upgraded venues as part of the Minor Venues Program.

Federal Budget 2023/24

Summary

Although it is important to acknowledge that a budget cannot address every issue, especially without contributing to deficits and inflation, the 2023/24 Federal Budget fails to adequately tackle the pressing challenges confronting the housing markets.

The projected population growth, soaring housing costs, shortage of rental accommodations, and pessimistic outlook for new home construction demand new initiatives to stimulate supply, improve affordability and alleviate rental affordability issues in the short term.

As stated in our pre-budget wish list, the Federal government must prioritise supply in its housing policy, which includes increasing rental accommodation, constructing more new homes, delivering more social and affordable homes and implementing tax reforms and incentives to encourage homeowners to upsize, downsize, and relocate. Failure to implement such measures risks entrenching the current issues playing out across Australian real estate markets.