The Wrap Up – How the Federal Budget Impacts Perth Landlords and Property Investors
On 29 March, Treasurer Josh Frydenberg handed down Federal Budget 2022. With an election looming, the Budget is voter-friendly, containing measures aimed at tackling the rising costs of living.
The Budget also prioritises home ownership in Australia.
What impact will this have on Perth landlords and property investors? Read on to find out.
What home ownership initiatives does Federal Budget 2022 contain?
One of the main housing initiatives in the budget is a broadening of schemes to support first time home buyers who are straining to save a deposit against a backdrop of rising house prices. In addition, there’s a $2 billion boost for community housing providers to deliver around 8,000 more social and affordable dwellings.
Let’s examine the first of these initiatives in more detail as they are likely to have more impact on Perth property investors and landlords.
Expansion of the Home Guarantee Scheme
The 2022 Budget expands the government’s Home Guarantee Scheme. Over four years, beginning in the 2022-2023 financial year, $8.6 million will be spent on the three separate parts of the Scheme. These are:
- the First Home Guarantee (previously called the First Home Loan Deposit Scheme)
- the Family Home Guarantee (designed to help single parents with dependent children)
- the Regional Home Guarantee (this is a new addition to the Scheme).
The First Home Guarantee Scheme now boasts 35,000 places per year, compared to just 10,000 places previously.
Through the First Home Guarantee, eligible first home buyers can purchase a property with as little as a 5% deposit. In addition, the government guarantees up to 15% of the home’s purchase price, allowing buyers to avoid paying the Lender’s Mortgage Insurance, which is usually required on deposits of less than 20%.
The types of Perth residential properties available under the Guarantee include:
- Existing apartments, houses and townhouses
- Newly built homes
- Off the plan properties
- House and land packages
To be eligible, aspiring home buyers must have an annual taxable income of no more than $200,000 for couples and $125,000 for singles.
For Perth, the property price cap is $500,000, while for the rest of WA, it’s $400,000.
The first home property market in Perth
According to WA Today, last year saw a doubling in the number of first time home buyers in the Western Australian housing market, with over 22,000 loan approvals for first time home buyers. The key drivers of the increase being the government’s COVID-19 stimulus grants and a tight rental market.
This is the first time since 2009 that first home buyers have claimed a larger ratio of new home loans than non-first time buyers, says Curtin University property expert Professor Steven Rowley.
In its 2022 First Home Buyer Report, Domain says Perth is still the best capital for first time home buyers, offering the fastest times for saving a deposit on entry-priced houses and units.
The Domain Report also notes that Perth is a “much more stable environment to save a deposit and keep up with the property market” compared with other Australian cities.
All of this is good news for first home buyers in Perth.
But what does it mean for property investors and landlords in the WA capital?
Impact of the Home Guarantee Scheme in Perth
With the increase in Home Guarantees making more people eligible for home loans, more buyers could enter the Perth housing market this year.
As more renters end their leases and become homeowners, Perth’s super-tight rental market could ease in the coming months. For landlords who suddenly find themselves with a vacant rental property, engaging the services of a professional rental appraiser before re-listing is highly recommended.
Similarly, Perth property investors with entry-level houses or units in their portfolios should seek advice from property experts about appropriate strategies in the future.
For more information on the outlook for the Perth property market in 2022, read this article.
What type of properties will first home buyers target?
In the West Australian capital, the housing supply is already low. So, in theory, a surge in demand by first time home buyers could exert more upward pressure on home prices.
Bearing in mind that the Home Guarantee Scheme has a price cap in Perth of $500,000 – which is below the median house price in the capital – a jump in house prices could potentially shrink the supply of entry-level properties even further.
Another likely outcome is that first time home buyers using the scheme will focus their attention on housing in Perth’s outer suburbs, where property prices are sometimes lower. Thanks to hybrid and remote working, some people can now redraw the boundaries of where they can live.
Some people taking up the scheme may even opt for the Regional Home Guarantee if it suits their employment situation.
In general, middle Australia is embracing decentralisation from their employment base, with Domain reporting a rise in keyword searches for lifestyle, greater space, garden and yard.
Of course, many of the lower-income workers who will take up the First Home Buyers Scheme won’t have the option of living far away from their place of employment. And because of the price cap, they may have to compromise on the property type.
For all Perth home-buyers, location is a key consideration when investing. Perth property experts will know which suburbs offer the best prospects for investors.
Industry reactions to the budget
Hayden Groves, President of the Real Estate Institute of Australia (REIA), says the 50,000 new places made available through the Home Guarantee Scheme are good news for the real estate sector.
He estimates that the $24 million commitment in home loan guarantees might create as much as $30 billion in sales activity. As a result, first home buyers will gain sooner entry into the market, and the economy as a whole will see a significant boost, Groves claims.
REIA also welcomes the $2 billion of extra funding to help address the supply of social and affordable housing.
Overall, the Federal Budget should help more aspiring home buyers to get into the market, and greater levels of home ownership are good for the economy.
The impact of inflation
While REIA thinks the budget will positively affect the economy, the institute has said the government’s inflation forecasts are very conservative.
Yet even with conservative predictions for inflation, wages growth over the next year will be modest. REIA believes this is not ideal for housing affordability or interest rates.
A city with a bright future
REIA has called the budget a “budget for the times”. It paints a rosy picture of the nation.
Unemployment, in particular, is expected to reach historic lows in 2022-2023. In contrast, dwelling investment is expected to grow, although it will likely drop as the HomeBuilder scheme winds down and supply chain shortages begin to hit hard.
As Perth moves forward after the pandemic, the Federal Budget’s lower than expected deficit and optimistic forecasts for Gross Domestic Product signal an upbeat future for WA.
Where the budget falls short
REIA highlights two main areas where the budget could have gone further. The first area is the skills shortage in the property sector, and the second is the housing supply crisis.
REIA says the budget could have done more to improve national productivity and real wages. This would lead to the kind of sustained economic growth that would pay for the increased spending during COVID-19.
REIA also continues its call for a generous, forward-thinking skills package. Setting up the real estate industry’s workforce for the future should be a priority.
The shortage of property managers in Australia sits at about 4,500, and this continues to be a source of great frustration to landlords, investors and real estate agencies across the country.
The property sector hopes the extra $2.8 billion allocated for the Australian Apprenticeships Incentives Program will cover all industries that need it as we emerge from the COVID-19 crisis.
A lack of housing supply is an ongoing issue in Perth, and all three levels of government must address this problem in future budget cycles.
Without government support, getting the “right supply mix within our existing housing stock … is unlikely to improve in the near term,” the President of REIA claims.
REIA is not alone in wanting the government to do more to boost housing stocks. The Property Council of Australia and the Urban Development Institute of Australia have also voiced concern over the low housing supply.
Several billion dollars in the latest federal budget have been earmarked for infrastructure projects in West Australia. This is good news for the property market as these projects are likely to boost jobs, attract more people to Perth and help shape the city for an eventual increase in housing supply.
Want to discuss how the Federal Budget 2022 impacts your Perth property investment?
If you’re a Perth property owner, you may be wondering how to manage your investment in the run-up to an election. For advice on strategy, it’s always best to speak to a property expert.
Contact us today if you’d like specialist advice on any aspect of your Perth property in this post-budget, pre-election climate.