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Housing and the federal budget - what’s in it for you?

By John Lindeman - posted Thursday, 22 May 2008

Just how effective will the first Labor budget in 13 years be in assisting home buyers and property investors? If names are anything to go by, there should be plenty.

To begin with, we have the grandly named First Home Saver Account Scheme, which offers a bonus of up to $850 to first home savers as well as income tax on earned interest capped at 15 per cent. This sounds generous and may well encourage more young people to save for a first home, however this incentive will actually lead to an increase in demand for housing without doing anything to increase supply. Therefore resulting in an increase in house prices which will exceed the rate at which prospective first home buyers deposit money in the bank.

The government has also responded to the problems of home buyers with a veiled threat to the Reserve Bank saying this government is serious about fighting inflation and so there is no need for interest rates to be raised.


In actual fact the budget’s inflation forecast for 2008-09 of 3.25 per cent is still higher than the Reserve Bank’s upper limit of 3 per cent. The government is admitting that the target can not be reached through its own efforts and this may force the Reserve Bank to act on interest rates sooner rather than later, before the July tax cuts force feed inflation.

An initiative to reduce housing costs is the Housing Affordability Fund. This fund provides $500 million in the next five years to remove red tape and solve other administrative problems with providing new housing. This misses the point as the bottlenecks are at local government level, while the money may well be consumed at a state and federal level before we even begin to see any real impact.

Is there anything for investors?

There is an apparent carrot, offering incentives to investors who provide properties at reduced rents. The National Rent Affordability Scheme, which will provide incentives of up to $8,000 per annum for new dwellings which investors offer to lease at 20 per cent below market rents. Now this sounds too good to be true, because if the full incentive is applied for example, Sydney houses with a median of $500 per week, the tenant saves $100 per week while the investor receives a rebate of $154 with a $54 per week net gain.

In reading the fine print you will discover that the scheme is co-funded by commonwealth, state and territory governments to encourage the construction of new dwellings by institutional investors which will be offered to people on Public Housing waiting lists at 20 per cent below market rents.

Really, this is nothing more than Public Housing masquerading as a national rental scheme and there is little to nothing in this for the average independent property investor - or for working families, for that matter.


Does the government really care about the rise in rental costs?

It is investors who are able to keep their tenants’ rents low through negative gearing and they encourage more housing development. So is there anything for investors in the Budget? No, because according to Treasury, there soon will not be many investors at all. The Budget forecasts a fall in capital gains tax of $14 billion during its current term of office, which can only mean stock market slumps and falls in the housing market. Perhaps they are telling investors that the days of generating wealth from asset appreciation are over and to get real jobs, like other working families.

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About the Author

John Lindeman is Chief Property Analyst at Residex.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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