Insights 2022 Federal Budget Breakdown - Housing - WITH CRAIG EMERSON, EMERSON ECONOMICS - PEXA
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
2022 Federal Budget Breakdown Insights — Housing WITH CRAIG EMERSON, EMERSON ECONOMICS
Welcome to PEXA’s inaugural Federal Budget Breakdown,
with a focus on housing. Contrary to early predictions of
a dramatic market downturn during the once-in-a-lifetime
pandemic, residential property – the backbone of the Australian
economy – remained remarkably resilient, with unprecedented
growth across capital cities and the regions alike.
This Federal Budget is a clear attempt to address that growth,
and those it might leave behind. Namely, first homebuyers. The
expansion of the Home Guarantee Scheme, for example, will
enable eligible first homebuyers to purchase their first home
with as little as a 5 per cent deposit (and 2 per cent for single
parents). This stimulus should continue to strengthen the outer
suburban growth corridors, proving attractive and affordable to
first homebuyers.
For investors or those carrying significant debt as a result of the
record low cash rates, 2022 may prove difficult, with a number of
interest rate rises seeming very likely. Find more on the Federal
Budget and its potential impact on housing within this report.
Scott Butterworth
Chief Data and Insights Officer, PEXA
The Budget will have two main impacts: increased demand
for housing by first homebuyers and upward pressure on
mortgage interest rates. Increased housing demand will come
from a greatly expanded Home Guarantee Scheme for first
homebuyers that will allow around one half of them to buy a
home for a deposit as small as 5 per cent. The effect of price
caps under the scheme will be to concentrate the increased
demand on urban fringes and in rural and regional areas.
An expansionary Budget will exert upward pressure on interest
rates. The Reserve Bank of Australia (RBA), having cut its
cash rate to a record low of 0.1 per cent early in the COVID-19
pandemic, will be under increased pressure to lift interest rates
to curb inflationary pressures.
Craig Emerson
Emerson Economics
2022 FEDERAL BUDGET BREAKDOWN 1
Federal stimulus stokes the
property market to new highs
Over a tumultuous two years since the start of the global
pandemic, the Australian property market has remained
remarkably resilient. Despite closed borders and rolling
lockdowns throughout most states, sales settlement
volumes grew by 31.8 per cent in calendar year 2021,
hitting over 834,000.
834,008 properties settled nationally in 2021,
a jump of 31.8 per cent on the prior year
Total sale settlements - National
The volume growth
experienced in 2021 was on
2019 2020 2021 top of the 7.2 per cent growth
590,077 632,706 834,008
in 2020.
Increased buyer demand saw
both years impacted by the
pandemic posting increased
property sale settlements.
annual growth 7.2% annual growth 31.8% Source: PEXA, Titles Queensland,
Landgate (WA), SA Office of the
Registrar-General, Land Services SA
2022 FEDERAL BUDGET BREAKDOWN 2
Metro versus the regions
Annual sale settlement growth was higher While interest in regional areas increased
for capital city areas than regional areas in during the pandemic, reflecting the new-
Queensland and Victoria throughout 2021. found ability for many Australians to work
However, the opposite was true for Western from anywhere, properties in capital cities also
Australia and South Australia, where regional experienced high levels of growth, cementing
areas grew faster. the ongoing importance of cities in the future
of the Australian property market. With borders
NSW experienced even growth across the now reopened, international investment in
state, up 25 per cent across Greater Sydney Australia’s major cities is an area to watch
and the regions. throughout 2022 and 2023.
SALE SETTLEMENT ANNUAL GROWTH 2020 AND 2021
Greater capital area Rest of state
QLD WA
SA VIC
NSW
50%
46%
40%
34%
26% 31%
25% 25% 30%
20%
SALE SETTLEMENT VOLUME – BY GEOGRAPHY
NSW QLD SA VIC WA
Greater capital area 104,222 72,048 32,454 116,662 52,299
2020
Rest of state 78,348 93,156 12,922 55,968 14,489
Greater capital area 130,351 107,830 40,776 153,124 73,247
2021
Rest of state 98,290 124,960 16,836 67,364 21,164
2022 FEDERAL BUDGET BREAKDOWN 3
Federal housing support during the pandemic Recognising the importance of the property The scheme proved to be popular with buyers market in the broader Australian economy, and was subsequently extended. As of 11 the Federal Government announced a raft of February 2022, over 137,000 applications had support measures during the initial period of been received. The First Home Loan Deposit the pandemic. The two policies at a federal level Scheme supported eligible first homebuyers specifically directed at the property market to purchase their first home sooner. From July were the Home Builder Scheme and the First 2021, 10,000 First Home Loan Deposit Scheme Home Loan Deposit Scheme. The Home Builder places were made available, guaranteeing Scheme was announced in June 2020 and home loans for first homebuyers with deposits provided eligible homebuyers with grants up to as little as 5 per cent. These demand-side $25,000 to encourage the commencement of policies proved to be popular with buyers and new home builds and renovations. contributed to the market’s resilience. 2022 FEDERAL BUDGET BREAKDOWN 4
Additional support initiatives
during the pandemic
In addition to these Federal Government A total of $688.7 billion was spent on
initiatives, state and territory governments Australian property in 2021, an increase of
also introduced a range of additional support, 57.3 per cent on 2020 driven by rises in both
including stamp duty reductions/exemptions the volume and value of sale settlements.
and first homebuyer grants. These measures NSW took the crown for the highest aggregate
were further bolstered by a loosening of value of sale settlements in 2021, with $262.2
monetary policy by the Reserve Bank of billion worth of property purchases in the state
Australia (RBA), including three interest rate during the year. Queensland was the standout
cuts in 2020 and an extensive quantitative performer in 2021, recording the most sale
easing program. In addition, there were broad- settlements of any state at 232,824, up 40.8
based recovery programs such as JobKeeper per cent year-on-year.
and JobSeeker, and subsequent support
packages offered by all levels of government
to businesses and individuals as part of the
COVID-19 response.
The aggregate value of sale
settlements nationally grew a huge +57.3%
57.3 per cent, to $688.7 billion in 2021
Aggregate value of sale
settlements - National
+12.0%
2019
2020
2021
This exceptional growth in 2021 came
on top of the 12.0 per cent growth
21
20
experienced in 2020. In fact, the
aggregate value of sale settlements
in 2021 was up 76.2 per cent on 2019,
0
the last full year before the pandemic.
2
20
Source: PEXA, Titles Queensland, Landgate
(WA), SA Office of the Registrar-General, Land
Services SA
19
20
2022 FEDERAL BUDGET BREAKDOWN 5
What’s in the Budget for property? With the property market proving incredibly robust, the Federal Government is using its 2022 Budget to address those groups that, without support, may be locked out of the property market indefinitely. This includes the expansion of the Home Guarantee Scheme to support first homebuyers and an increase in the National Housing Finance and Investment Corporation’s lending capacity with the aim of increasing the supply of affordable housing. 1. Expansion of Home Guarantee Scheme 5,000 guarantees each year to expand the Family Home Guarantee announced in last year’s Budget to help single parents with children to buy a home. Under this scheme the Commonwealth – through the NHFIC – guarantees up to 15 per cent of the value of a property. This enables eligible first homebuyers to purchase their first home with as little as a 5 per cent deposit (and 2 per cent for single parents). The expanded Home Guarantee Scheme comprises: > 35,000 guarantees a year (up from the current 10,000); > 10,000 guarantees a year under a new Regional Home Guarantee, to support first homebuyers in regional areas; and > 5,000 guarantees each year to expand the Family Home Guarantee announced in last year’s Budget for single parents with children to buy a home. 2. Increase in NHFIC’s lending capacity The Budget increases the lending capacity of the NHFIC, which provides low-cost loans to community housing with the aim of increasing the supply of affordable housing. The increase in the NHFIC’s liability cap is from $3.5 billion to $5.5 billion. It is expected to support around 10,000 more affordable homes for vulnerable people. The NHFIC has already supported more than 15,000 new and existing affordable dwellings. 2022 FEDERAL BUDGET BREAKDOWN 6
Effect of the Home Guarantee Scheme on property First homeowner purchases over the past 12 years have averaged just over 100,000 per annum. The expansion of the Home Guarantee Scheme to 50,000 places per annum means the Commonwealth, through the NHFIC, will be guaranteeing up to 15 per cent of the value of around half of all first home loans. The Budget did not announce any changes to the property price caps under the Scheme, despite large increases in house prices in the past 12 months or so. Some examples of property price caps are: Sydney, Newcastle and the Illawarra $950,000 NSW other $600,000 Melbourne and Geelong $850,000 Victoria other $550,000 Brisbane, Gold Coast & Sunshine Coast $650,000 Queensland other $500,000 ACT $600,000 These price caps favour new home building on the fringes of capital cities and in rural and regional locations. Most economists agree that the main effect of schemes such as the Home Guarantee Scheme is to increase the demand for new homes while supply remains restricted – forcing up the prices of new and existing homes. 2022 FEDERAL BUDGET BREAKDOWN 7
Indirect Budget impacts on the housing market
The major indirect impacts are: 1. Support for infrastructure
1. Support for infrastructure A $38 billion infrastructure program includes:
> $7.1
billion for investments in the Northern
2. S
upport for expanding the pool Territory, North and Central Queensland, the
of trained labour Pilbara and the Hunter Valley; and
3. Support for households > An
additional $17.9 billion for road, rail and
community infrastructure projects.
This boost in regional infrastructure has
potential crowding-out effects for some
construction, materials and labour, affecting
housing supply and costs.
2. Support for expanding the pool of labour
Skills development will be increased through:
>A
n extra $2.8 billion over five years to
upskill apprentices, including through a new
streamlined Australian Apprenticeships
Incentive System; and
>A
Commonwealth offer of a $3.7 billion
increase in funding under a new National
Skills Agreement with the capacity to deliver
an additional 800,000 training places.
3. Support for households
Budget measures to ease cost-of-living
pressures in the short term include:
>A
halving of the fuel excise for six months,
costing $3 billion;
>A
$250 one-off cash payment for six million
pensioners and concession card holders,
costing $1.5 billion; and
>A
$450 increase in the temporary Low and
Middle Income Tax Offset (LMITO) payable
from the end of the current financial year,
costing $4 billion.
2022 FEDERAL BUDGET BREAKDOWN 8
Impact of the Budget on
macroeconomic settings
including interest rates
Budget bottom line
Fiscal revenues are surprisingly strong,
supported by better-than-expected economic
growth and commodity price rises associated
with the war in Ukraine and elevated
geopolitical tensions.
However, much of this extra revenue is recycled
into new spending, resulting in an unchanged
Budget deficit in the near term.
Outlook for wages and inflation
The increase in LMITO is on top of the $8 billion Wages, based on a broader measure that
cost of the existing LMITO, so $12 billion will be captures total renumeration including
injected into the economy from the middle of bonuses, overtime and allowances, as well as
this year. the effect of workers gaining promotions or
changing jobs as they take advantage of tight
Furthermore, household savings during the labour market conditions, are forecast to grow
pandemic reached $245 billion. Some of these faster than inflation1.
savings will be run down in the coming period.
However, based on the more commonly used
The temporary measures and a rundown of wage price index (WPI), wages are forecast to
household savings will fuel inflation, which is grow more slowly than inflation over the four-year
forecast to reach 4.25 per cent this financial Budget period, catching up only in 2024-252.
year. This compares with inflation rates of less
than 2 per cent over the last few years.
1. BP No1, p. 58 2. BP No 1, p. 6
2022 FEDERAL BUDGET BREAKDOWN 9Outlook for interest rates
To deal with a collapsing economy during New dwelling investment is forecast to fall
the worst of the COVID-19 pandemic, the sharply in 2023-24.
RBA cut its cash rate to just 0.1 per cent in
November 2020 and embarked on a program While mortgage interest rates are likely to
of Quantitative Easing (QE) for the first time. remain very low by historical standards, every
1 percentage point increase in home loan rates
The RBA ended its QE program on 10 February would add around $417 per month to the cost
2022, but the cash rate remains at 0.1 per cent. of a $500,000 mortgage.
During the pandemic, the RBA provided Australian households are among the most
forward guidance that the cash rate would not heavily indebted in the developed world.
be increased until 2024. More recently, the RBA With sharp house price rises in recent years,
has been resisting pressure from bond traders increases in mortgage interest rates will
and many economists to increase the cash rate. inevitably increase mortgage stress.
However, the RBA has recently changed its The likely impact of rising interest rates is for
rhetoric, opening up the prospect of cash rate some slowing in house price growth.
increases later in 2022.
However, renewed immigration flows will put
The Budget papers adopted recent market some upwards pressure on house prices.
pricing for interest rates, which assumes the
cash rate will be increased from 0.1 per cent to Further, with ongoing internal migrations of
about 1 per cent by the end of 2022. capital city populations to regional centres,
considerable variability in house price changes
But following the release of the Budget, market can be expected.
expectations shifted sharply, for the cash rate
to increase to 1.8 per cent by the end of 2022. For more information, please visit:
pexa.com.au/insights
Markets are pricing in a 3.1 per cent cash rate
by August next year. That’s 3 percentage points
higher than it is now.
2022 FEDERAL BUDGET BREAKDOWN 10You can also read
