Housing affordability remains a huge sticking point amid the Federal government’s temporary measures to soften the blow of inflation for Australians.
Peter Esho, co-founder at Wealthi shares some insights about the federal budget and its implications for the property market and housing affordability.
He said, “The Federal budget doesn't address one of the most sensitive economic and social issues facing Australia - appropriate affordable housing.”
Esho pointed out, “Existing grants are demand drivers, not supply motivators. At the same time, rising commodity and labour prices are at risk of hitting supply even further.”
“The supply crunch is likely to push up real estate prices even further and it seems like the current government has gone for a soft, band-aid solution rather than a serious attempt to address Australia's affordable housing problem.” - Peter Esho
Under the Federal budget announced this week, the first home buyer scheme has been extended. The government is also launching a regional home guarantee program aimed at helping home buyers in regional areas.
On a related issue where the Federal government announced a regional home guarantee scheme, Domenic Nesci, co-founder at Wealthi, also expressed some concerns.
Nesci said, “The Australian building industry may come under more pressure as the federal government introduces a new Regional Home Guarantee scheme that will kick in from 1 October 2022 to 30 June 2025.
According to Nesci, “This incentive will put more pressure on the building industry and drive up build prices in regional markets which are already in short supply of labour and materials,”
The regional home guarantee scheme aims to provide 10,000 guarantees to support eligible homebuyers, including non-first home buyers and permanent residents, to purchase or construct a new home in regional areas, subject to the passage of enabling legislation.
However, Nesci said the scheme, “Will exacerbate affordability in the regional markets. The grant incentivises people to stretch for homeownership and will bring forward many homeowners that would have needed to wait the additional 2-3 years to save the remaining 5-15% deposit.”
On the other hand, Nesci said the scheme can be effective in helping people break into the property market much earlier. It could help people fast-track their way into homeownership.
“This is a very effective way to help people break into the market. The average homeowner takes between 3-7 years to save a deposit depending on what city they are trying to break into. This incentive allows buyers to cut this time by up to 75%,” he said.
But there could be a downside to construction costs as Nesci pointed out, “This scheme will be effective in bringing buyers to the market but will exacerbate construction costs. The market is already tight this will add further pressure.”
“My biggest concern about this government grant is it incentivizes people to over-leverage on their own home in a time of rising interest rates,” Nesci added.
This is very concerning since people will stretch for their "dream home" and will overlook the long-term impacts of a 50% or 100% increase in their variable rates.
This is huge for a homeowner since they're not collecting rent and it only takes a few little surprises to change the household expenses or income, such as a new baby, a change of job or an accident at home.
According to Nesci, it is these pressures that may have longer-term impacts on the property market and the potential for future fire sales.
If you would like to discuss the Australian property market in more detail, please reach out to the team to organise a time to have a conversation about how Wealthi can help you build a successful property portfolio.