The 2018 federal budget and Australian housing

THE announcement of Federal Treasurer Scott Morrison’s budget last week was out of the ordinary in one way: there was little to no discussion of housing affordability in Australia.

Taxpayers were touted as the overall winners from the budget, which included tax relief to lower and middle-income Australians at a projected cost of $140 billion that is intended to keep Liberals in government by spreading these savings out over seven years.

The Australian Prudential Regulation Authority has had a marked effect on the market since its March 2017 announcement that it was going to crack down on risky lending practices, capping interest-only lending to 30 per cent of new loans.

As a result, investor demand dropped significantly to 18 per cent lower than market highs, while interest-only loans as a proportion of new loans dropped to 15.22 per cent in the December quarter.

APRA recently announced a lift on caps to investor lending, which was introduced in 2014, in an effort to reverse some of this drop in investor demand, which is projected to keep prices strong through a gradual increase in the proportion of investors entering the market.

At the same time, RBA interest rates are expected to stay the same at least through winter.

The effects of APRA’s 2017 measures and the consequent cooling of the market (with the annual price growth in Sydney actually declining for the first time since 2012), as well as changes to investor lending caps may be the main reason housing affordability failed to get any significant attention in the budget announcement.

Tax breaks and the message that the economy is in good shape is intended to boost consumer confidence within all areas of the economy, including for buyers and sellers of property.

Clearance rates have dropped over the past six months, but have remained relatively stable throughout 2018.

The government’s decision to keep housing out of the budget discussion indicates that the treasurer sees little need to interfere in issues such as negative gearing or other first home buyer incentives, instead relying on an ostensibly healthy economy, as well as market and regulatory forces to improve the chances of first home buyers who want to enter the property market.