We’ve had the big reveal for the latest Federal and State Budgets. There’s a lot to take in, so we’re breaking it down to see how Perth’s property market may be impacted.
Not surprisingly, a key takeout of the Federal and WA State Budgets is that action needs to be taken to address housing supply and affordability.
Fortunately, Perth remains one of Australia’s most affordable state capitals. However, values are rising. CoreLogic reports price growth of up to 8.4% over the last year in some Perth neighbourhoods (CoreLogic 2023).
The rental market remains exceptionally tight. Perth, together with Adelaide, has the nation’s lowest vacancy rate of just 0.6% (SQM Research 2023). This has pushed up Perth’s median weekly rent by 17.7% in just 12 months (SQM Research 2023).
The upshot is that along with cost-of-living relief for households, both Budgets are aiming to encourage the construction of more new homes.
Here’s what’s involved at a glance.
The Federal Budget
The Albanese Government is aiming to boost the supply of housing by building one million new homes over five years from 2024. New incentives pitched at meeting this ambitious target include:
Encouraging build to rent (BTR) projects
BTR refers to multi-apartment developments with a single ownership structure specifically intended for long term rental.
The BTR model, which is popular in Europe and the US, provides developers and project owners with reliable, long term rental income while giving renters the security of longer leases.
The Federal Budget is encouraging BTR by:
- Cutting withholding tax for managed investment trusts engaged in BTR projects from 30% to 15% effective 1 July 2024.
- Increasing the capital works depreciation rate on new BTR developments from 2.5% to 4% annually, thereby boosting after-tax returns.
Increasing the availability and diversity of housing options
The National Housing Finance and Investment Corporation has been given a $2 billion funding boost to support more lending to community housing providers, with the goal of constructing 7,000 new social and affordable homes.
First home buyers will benefit from an expansion of eligibility for the 5% deposit Home Guarantee Schemes, which from July 2023 will allow friends and relatives to buy together, not just married or de facto couples.
15% rise in rent assistance
The maximum rate of Commonwealth Rent Assistance (CRA) will be lifted by 15% from September 2023 to provide an extra $31 per fortnight – the biggest increase in over 30 years. Although this measure won’t increase housing supply, CRA is paid to low-income earners who rent privately, and it may give some financial relief in the face of rising rents.
WA’s State Budget
The McGowan Government’s 2023-24 Budget delivers a $750 million boost for housing supply and housing choice initiatives, with a particular focus on social housing. Key announcements include:
$511 million toward social housing
The State Budget has allocated an additional $511 million towards social housing and homelessness. This includes $450 million towards the Social Housing Investment Fund, which is expected to deliver around 700 additional social homes across WA.
$48 million to grow the construction sector workforce.
The building industry’s biggest barrier to improving housing supply and affordability in WA is a shortage of skilled labour. The McGowan Government aims to ease this with $48 million pitched at training programs to boost the construction workforce through:
- A rise in employer grants for hiring apprentices from $10,000 to $12,000
- A $2,000 training completion payment for apprentices, and
- An $11 million visa subsidy plan to attract skilled immigrants to the industry.
Increasing the availability/diversity of housing
Among the measures to tackle housing affordability, the WA State Budget delivers:
- $33 million to expand the off-the-plan transfer duty rebate, plus an increase in the threshold for 100% duty exemption for properties valued at $650,000, cutting out altogether for homes valued at $750,000.
- $48 million towards Perth’s Bentley Residential Redevelopment site to provide a mix of social and affordable housing.
- $55 million to upgrade water infrastructure, allowing additional property development sites across Perth.
- $61.6 million to refurbish/build homes in regional areas to attract key public sector workers to regional WA.
Likely impact on the Perth property market
The State and Federal Budgets both mark a noticeable shift away from demand-side initiatives that have fuelled buyer demand for housing, and instead recognise the need for additional housing supply.
The Housing Industry Association (HIA) notes that housing supply and affordability remains the “biggest challenge” for Western Australians, not only to help people now but also to help the state manage future population growth (HIA 2023).
According to the HIA, WA needs to build 10% of the one million homes proposed by the Federal Government’s national Housing Accord over the next five years. That equates to 20,000 homes per year, yet currently we’re only building 14,000 new dwellings annually.
As such, while the housing measures of both State and Federal Budgets are welcome, an ongoing supply shortfall coupled with high immigration levels means there is likely to be only muted impact on housing affordability over the short term.
From an economic perspective, the news is all good.
WA continues to enjoy a buoyant economy. As Premier McGowan puts it, “Amid the rugged economic conditions worldwide, Western Australia walks tall” (Government of Western Australia 2023).
The state economy is expected to grow by 4.25% this year – the strongest in nine years. The state Budget is in surplus, and a record number of Western Australians are in full-time work, which is attracting further migration to Perth.
The upshot is that Perth’s residential property market, one of the most affordable in Australia, will continue to offer exciting, value-packed opportunities to investors.
The investors most likely to benefit are those who partner with property professionals who have the insights to identify growth locations and the experience to know how to make the most of them.