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Budget Ho-Hum for Hot Housing Market? - featured image

Budget Ho-Hum for Hot Housing Market?

The Federal Budget has introduced a number of initiatives directly targeting currently booming housing markets.

The impact of these new policies on rising buyer imbalances and reduced liveability as a result of surging home prices however is questionable. Recession Australia Note Money Economy Squeeze Tighten Save Saving Budget Cut 300x200

Capital cities have generally recorded extraordinary home price growth so far this year as pent-up demand surges following the easing of last year’s severe coronavirus restrictions.

Skyrocketing house prices is bad news for first home buyers who struggle to save the required deposit to keep up with a hot market – particularly with income growth at record low levels.

First home buyer activity has been particularly strong over recent years, driven naturally by flat home prices and various government incentives.

But booming prices are now predictably impacting first home buyers with activity levels declining over recent months.

And this is likely to continue with plenty of upside remaining for home price growth this year and a revival in investors also set to crowd out first home buyers.

To offset increased barriers to first home buyer market access, the federal government has announced a number of new and enhanced policies.

The new Family Home Guarantee will allow single parents with a maximum annual income of $125,000 to purchase a home with a minimum deposit of 2% but with local market price ceilings – Sydney $700,000, Melbourne $600,000 and Brisbane $475,000. The scheme is limited to 10,000 places.

Applicants with the maximum income profile will be able to borrow around $500,000 at current interest rates which will nonetheless leave few options to purchase appropriate family-friendly homes - particularly in Sydney and Melbourne that generate the majority of first home buyers nationally.

  • The current median asking price for a 2 bedroom unit in Sydney is $615,000 with a 3 bedroom at $820,000.
  • In Melbourne, the 2 bedroom unit median is $520,000 with 3 bedroom unit median asking prices at $585,000.
  • For Brisbane, the 2 bedroom unit median is $400,000 with 3 bedroom unit median asking prices at $560,000.
  • By comparison, the median asking price for a Sydney house is currently $1,297,077 with Melbourne at $869,490 and Brisbane at $568,992, and all clearly still rising strongly.

The government has also reintroduced the New Home Guarantee which allows first home buyers with a maximum income for couples under $200,000 to secure a new home with a minimum 5% deposit.

The price ceilings for this scheme are $950,000 in Sydney, $850,000 in Melbourne, and $650,000 in Brisbane.

Again, restricted to 10,000 places.

Although this scheme, building on its previous success, will provide more opportunities for first home buyers, the current boom in new house construction is set to lead to supply constraints and higher building costs, and clearly favours those content with outer-suburban fringe living.

Nonetheless, the big picture is the policy’s clear potential for the ongoing economic stimulus provided by the residential construction industry - and that is still the main game in Australia’s ongoing covid recovery.

The current median asking price for a new home in Sydney is $859,995, in Melbourne $556,000 and in Brisbane $491,000.

Current Asking Prices

The government has also announced an extension to the First Home Buyer Super Saver Scheme that will now allow an increase in member contributions from $30,000 to $50,000 specifically nominated for the purchase of a new home and with annual contribution caps.

This is however unlikely to have a significant impact on first home buyer numbers over the shorter term with the changes to come into effect from July 2022.

In addition to new policies directed at first home buyers, the government has also announced changes to its downsizer scheme that allows extra super contributions to those that sell a family home that has been owned for at least 10 years.

The age eligibility for the scheme has now been lowered from 65 to 60.

The scheme has had limited success in significantly accelerating downsizing since its introduction in the 2017-18 budget, clearly impeded by the lack of suitable next-stage downsizer accommodation. city family urban suburb

The reduced age eligibility will only exacerbate this issue, with the clear shortage of reasonably affordable, medium-density, and larger higher-density dwellings in established middle and inner suburbs.

The availability of appropriate suburban downsizer accommodation likely takes priority over financial incentives, particularly for a younger demographic.

The federal government has announced a number of narrowly targeted budget initiatives that will assist some first home buyers to realise the Great Australian Dream.

They are however unlikely to significantly stem an ongoing decline in activity from this group now suffocating from booming home prices and surging investors with total activity over the next year set to fall by at least 20% - even with a full uptake of the schemes announced.

The likely overall decline in first home buyers however will be offset by rising investor activity which will maintain upward pressure on house prices - the bane of first home buyers.

Comprehensive and targeted supply-side initiatives are needed to match the demand-stimulating policies that clearly result in more urban sprawl, fringe-living dislocation and suburb marginalisation - and higher overall home prices.

About Dr Andrew Wilson, Chief Economist of is widely regarded as Australia’s leading property economist.
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