The Federal Budget and Housing

The dream of owning a home is slipping away for some Australians as the country grapples with a significant affordability crisis that’s seen property prices and rents soar.

The heart of the issue is a mismatch between housing supply and demand.

Let’s take a deeper look at why this is happening and how the recent 2024 federal budget aims to help fix this problem with a substantial $6.2 billion of new investment.

The roots of the housing crunch

 To understand the housing crisis, you need to look at the cold hard numbers.

According to the Australian Bureau of Statistics (ABS), the nation’s population has been rapidly increasing, with the country adding 659,800 people in the year to September 2023, an increase of 2.5%.

This sharp rise in population has been fuelled by high rates of overseas migration, which accounted for 83% of the annual growth. This growth has, in turn, put considerable pressure on the property and rental markets, as more people means more demand for homes​.

Compounding the issue is the trend towards smaller household sizes, with the average number of people living in a household falling from around 2.8 in the mid-1980s to 2.5 today – see the Reserve Bank of Australia graph below.

As households become smaller, more dwellings are required to house the same number of people.

Meanwhile, the supply of new homes hasn’t kept pace with this burgeoning demand.

For instance, recent ABS data shows that just over 13,000 new homes got the green light in April, which is close to decade lows.

To make matters worse, projects with building approvals in place might not even get built – with a new KPMG analysis showing nearly 40,000 dwellings in Australia were ‘approved but not yet commenced’ as of December 2023.

The lion’s share of these stalled construction projects were in Sydney (30%) and Melbourne (18%).

The bottleneck in housing supply has been exacerbated by several factors, including:

• High construction costs: Increasing material and labour costs as well as higher interest rates have made it more expensive to build new homes, which can deter developers from launching new projects.
• Regulatory barriers: Zoning laws and planning permissions can significantly delay the construction of new housing, particularly if there is a lot of local opposition to the project.
• Land availability: Access to developable land can limit the opportunities for new housing projects, particularly in urban areas where demand is highest.

A $6.2 billion boost

In response to these ongoing challenges, the 2024 federal budget allocated $6.2 billion of new investment specifically for housing initiatives.

This funding is part of a broader effort to build more homes and improve housing affordability for Australians across the board.

Key components of this investment include:

• Infrastructure support: $1 billion has been earmarked for states and territories to enhance infrastructure critical for new housing developments. This investment will facilitate the provision of essential services like water, electricity, and roads, which are pivotal for unlocking new areas for housing development.
• Rent assistance: With rental markets squeezed, the budget boosts Commonwealth Rent Assistance by an additional 10%, on top of a previous 15% hike. This move aims to cushion nearly one million households from the harsh realities of rental stress, making daily life more affordable for many Australians.
• Funding for social and community housing: Recognising the need for affordable housing solutions, the government is also channelling funds towards social and community housing projects. This includes providing concessional loans and grants to community housing providers to encourage the development of affordable housing units.
• Training for construction workers: To make sure there are enough skilled workers to build these new homes, the government is funding 20,000 new places in TAFE for courses related to construction. This is key to helping speed up the building of new homes.

Shore Financial can help you get a new home loan or refinance an existing loan. To discuss your options, call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.