While the Budget speech referenced housing a few times, in the sense that falling housing prices represent a downside risk to budget forecasts, there was in fact very little in the Budget directly focussed on the housing sector.
With the performance of the housing and household sector so critical to the government achieving their forecasts and planned surplus, there is certainly an argument that more could have been provided in the Budget to support these sectors.
The government expects wages to rise only modestly, with growth forecast to rise from 2.1% to 2.5% in 2018/19 before ticking higher to 2.75% in 2019/20, supported by lower unemployment and jobs growth of around 2% per annum.
Based on these forecasts, and their potential to undershoot as they have over previous years, we can’t rely on a material improvement in household incomes to boost spending and stave off a higher rate of saving.
On the positive side, household income and consumption should find some support from personal income tax cuts for low to middle-income workers (those earning $126,000 or less) and cost of living relief to pensioners.
With income growth slow additional cash in people’s pockets each week is positive and could be moderately stimulatory from a consumer expenditure perspective. For example, those that earn between $48,001 and $90,000 will gain an additional $1080 over a year.
Treasurer Josh Frydenberg reiterated that housing affordability was a key priority for the government, but it looks like the government is content to see housing affordability improve ‘organically’ via lower housing prices that could act as a contagion to weaker household consumption and a sharper than expected fall in residential construction.
While this may seems a bit passive, it’s clear that housing affordability has improved substantially since the last Budget due to lower housing values in the most expensive cities as well as the lowest mortgage rates since the 1960’s and a subtle rise in incomes.
Arguably, the state and local governments have more ability to tackle housing affordability than the federal government, with factors such as stamp duty payments, allocation of the first home buyers grant, land release, development charges and town planning all falling outside of the federal government arena.
Perhaps the most substantial area of the Budget related to housing is a reiteration of the strong infrastructure spend and the City Deals, which will provide stimulus for specific regions of the country and help to cushion the downturn in residential construction.
Infrastructure spending is up 25% on last year, with a record level $100 billion spend over the next ten years. While the allocation of this spend is short on detail (likely to be trickle fed to the market via election announcements), it seems much will be dedicated to improving transport infrastructure in an effort to ease congestion and better manage population growth.
Major projects included funding of $2b for the fast rail between Melbourne and Geelong, a quadrupling of the urban congestion fund to $4b and detailed assessments for additional fast rail corridors.
These additional fast rail corridors are: Sydney to Wollongong, Sydney to Parkes, Melbourne to Albury/Wodonga, Melbourne to Traralgon and Brisbane to the Gold Coast.
Sticking with a public transport theme, the Budget committed $500 million from the Urban Congestion Fund to provide better park and ride facilities.
The City Deals are nothing new, however, the Budget reaffirms the commitment of $5.7 billion of funding delivered in Townsville, Launceston, Western Sydney, Darwin, Hobart, Geelong and Adelaide, as well as the announcement of a recent deal for South East Queensland.
The government has also announced a roll out of regional deals for Barkley NT, Hinkler Qld and Albury Wodonga NSW/Vic.
No doubt the strong infrastructure spend and investment in improving the key areas of Australia’s cities will be stimulatory for housing markets that benefit from the improvements.
Tackling congestion and improving access to essential amenities should indirectly support housing affordability by making the most affordable regions of the cities more accessible and liveable.
Questions remain as to whether $100 billion is actually enough to tackle the infrastructure deficit however, expenditure up materially which is encouraging.
Overall, the Budget didn’t really focus on housing however, some of the associated issues such as household incomes and infrastructure investment are being addressed which is positive to see.