Now that the ink has dried on the federal budget, what lies ahead for the property market?
Of course, general fiscal policy has an indirect impact upon the housing market and interest rates, but the budget also dedicated a full 31 pages to a discussion of the nation’s “housing challenge” – introduced with the following statement:
“Australia has a housing shortage. There are not enough homes being built in the right areas to meet the needs of our communities. This statement focuses on the reasons for the current undersupply of housing, how it affects affordability, and the changes required to more quickly unlock supply to meet the housing needs of all Australians. It also sets out how the Government’s policy responds to these drivers of undersupply.”
So again, as we’ve seen for some time now, the admission of a problem in the housing market is again framed explicitly as a supply-led issue.
The emphasis, then, is upon government stimulus for new home construction:
“The Government is responding to build more homes for Australia. It has a $32 billion plan, including $6.2 billion of new initiatives in this Budget. It represents a long-term response to a complex structural challenge.”
The budget again reiterates some of the housing affordability initiatives previously announced, such as the problematic Housing Australia Future Fund (which we have critiqued in an earlier article).
Quite incredibly, the budget’s housing section includes almost no mention of the impact of demand-side factors upon the housing market. The word ‘immigration’ appears precisely zero times within the 31-page document, despite the obvious impact of unprecedented immigration levels upon the rental market and house prices:
As we’ve already discussed at length, the prior housing initiatives mentioned in this budget suffer from a number fundamental flaws, and seem unlikely to address the severe imbalances that persist within the property market.
But what about fiscal stimulus?
Is there a chance that, as some are predicting, government spending in this budget will be inflationary and push back rate cuts?
For instance, former treasurer Peter Costello has claimed that Labor’s budget is “inflationary on every measure”. In particular, Mr Costello has echoed a host of commentators in suggesting that the government’s $300 power bill rebate for every household, alongside stage 3 tax cuts, will cause inflation to remain higher for longer.
If he’s right, that would of course be severely bad news for interest rates, housing affordability and the property market.
In a survey of economists, less than half of respondents scored the budget a A or a B, in terms of its ability to manage inflationary pressures:
In response to this, the results of a survey suggest that most Australians plan to save or pay off debts with their $300 electricity rebate:
So, while this may be an encouraging sign for inflation, it of course doesn’t say anything about the potential impact of tax cuts.
According to one economist at the University of Sydney – “while spending to reduce power bills might make one or two quarters of the consumer price index look better, it would give consumers more money to spend and push up other prices.”
Overall, the majority of commentary seems to point towards the budget being more inflationary than not. However, bearing in mind the current trajectory of inflation, we don’t expect it to have a substantial impact upon the timing of interest rate cuts.
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