Property Observer exclusive: Industry experts on Australia's 2014 federal budget

Property Observer exclusive: Industry experts on Australia's 2014 federal budget
Property Observer exclusive: Industry experts on Australia's 2014 federal budget

Treasurer Joe Hockey will tomorrow announce the Abbott government’s first federal budget.

The Coalition pledges to return the budget to surplus by 2023-24. With talk of a budget “emergency” or “crisis”some are worried that the government will deliver a tough budget to the detriment of the economy. 

Here's what the experts think of the prospective federal budget and the impact it will have on the country's housing sector.

Property Observer exclusive: Industry experts on Australia's 2014 federal budgetDALLAS ROGERS - Research Fellow, Urban Research Centre at University of Western Sydney

It’s worth remembering on budget night that we all live in subsidised housing. The great Australian dream to own a house has long been underwritten by the great Australian housing subsidy. Whether you are a public housing tenant, a private renter or a homeowner, chances are your house was subsidised through a rental subsidy, housing grant or taxation credit. There will be housing winners and losers on budget night.

It’s not looking good for public and social housing subsidies this budget. The Commission of Audit urged the Commonwealth to limit its involvement in public and social housing by providing rent assistance to income support recipients. If Hockey followed through with these recommendations social and public housing tenants would have to pay market rent for their currently subsidised housing. The National Rental Affordability Scheme would go too. This would be bad news for housing equity. The frail and elderly, those with carer responsibilities or complex medical needs, or very low-income Australians in public or social housing would be hit hardest.

Comparably, The Commission of Audit was silent on private housing taxation. Private housing subsidies are like chocolate, we know that we should use them in moderation but we just cannot cut back. We often pretend that they are not subsidies at all. AMP chief economist says ‘changes to negative gearing or the CGT exemption on the family home would be seen as “unAustralian”’. Grattan Institute data suggests that more than 90 per cent of private housing subsidies go to property owners over private renters (see below). Including the roughly $30 billion pa capital gains tax benefit for owner-occupiers and the $7 billion pa negative gearing benefit for landlords. Most tax concessions do not generate new housing stock. They all, with the addition of the first homebuyers grant, drive up property prices. This is good for homeowners and developers, and bad for renters.

Property Observer exclusive: Industry experts on Australia's 2014 federal budget

If we want housing equity and socially just cities we need to rethink public and private housing subsidies. There is scope for innovative private sector models and taxation policy – e.g., National Rental Affordability Scheme – that provide additional housing stock. But we will always need housing tenure forms that operate outside the market for the poorest and most disadvantaged Australians.  

You might also want to read: Joe Hockey treating Australian public as fiscal fools ahead of the federal budget

 

SHANE OLIVER - Head of investment strategy and chief economist, AMP Capital shane-oliver-profile

There is a possibility that negative gearing might be tightened, but at this stage I’d only put it in the possibility camp. I think it’s probably unlikely. I can’t see any other changes that directly affect housing. The government has virtually ruled out including family homes in the means test for pensions, and it’s unlikely that they’ll remove CGT tax-free status for the family home.

Most implications will be indirect. That’s the biggest risk. The government is fairly intent on significant fiscal tightening to deal with the “budget emergency.”

That means tougher means testing and reducing eligibility criteria for family benefits. We might see possible tax hikes for high income earners and numerous cuts to the level of government spending. Those changes could adversely affect spending power in the economy and could affect housing demand. The risk is that they’ll get carried away. There’s tough budget talk prior to every budget. Often things aren’t quite as tough as you’ll expect, but the rhetoric has been quite a bit tougher this time.

[The Coalition] have painted themselves into a corner, saying that there’s an emergency. Having talked up the budget crisis, there’s a bit more pressure than normal for the government to deliver.

There is a potential upside for property in the sense that if the budget is too austere and too aggressive with cut backs, it may mean lower interest rates for a longer period of time. [AMP Capital] have predicted a September or October rate hike, but we’d be inclined to think that that won’t occur if the budget is too tight. And if upper income tax rates rise, people might more inclined to negatively gear.

You might also want to read: What do we need to see from the federal budget? The experts have their say

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ROBERT SIMEON - Director of Richardson Wrench Mosman and Neutral Bay 

Historically real estate has been a minor player come budget time. The government of the day prefers to address the industry from more of a macro positioning, given that is by far an easier option when compared to a microeconomic analysis. For all intents and purposes, if the real estate/housing demographic were that essential then it would be fair to say there would actually be a designated Housing Minister which is not the case with the Abbott led government.

Landlords and investors can breathe a sigh of relief - negative gearing won’t be touched, although given the recent Commission of Audit it would be fair to say at some time in the future this will come under much greater scrutiny. When one looks at the real estate/ housing markets there is the one common theme; record high rents and record high average prices across the board. Again this is easy to disguise as this will be camouflaged with macroeconomic dialogue.

Infrastructure will be front and centre given the recent COAG meeting endorsed the compilation of an asset sales list that would see them attain federal funding based on these sales for a massive infrastructure spend. The only problem with this is that the infrastructure expenditure is already decades behind where it should be today.

Sadly there won’t be any incentives for the housing construction industry which is seriously lagging behind where it should be today – this is reflective with what is happening to property values and rents. The Australian Bureau of Statistics (ABS) released their building approvals data to March 2014. It showed that in the past year 188,070 houses/units were approved yet the real figure is that Australia needs to be building over 300,000 each year to get close to meeting demand.

The latest ABS figures identify that total household debt in Australia stands at $1.84 trillion as at December 2013 – this is equivalent to $79,000 for every person living in Australia and is the highest amount ever recorded for the last 25 years.

Foreign ownership of Australian residential real estate should and must come into budget considerations given the government restrictions are weak and at best need tightening.

As I mentioned previously, all the machinations pertaining to the property industry will be covered with macroeconomic spin. The budget is all about the government’s financial positioning which will be hinged to weak productivity, an ageing population and falling terms of trade.

So expect the focus to be on government debt and how we all will be expected to lend a hand to correcting this economic anomaly. Just don’t mention microeconomics.

You might also want to read: Budget week is all about huff and puff

LEANNE PILKINGTON - General Manager, Laing+SimmonsProperty Observer exclusive: Industry experts on Australia's 2014 federal budget

Affordability issues have come to the point where they are more than simply a barrier for first home buyers looking to enter the market. People in this bracket are increasingly dismissing even obtaining a mortgage as a lost cause.

While existing property owners welcome reports of rising prices and investors continue to participate actively in the market, the pessimism among first home buyers is palpable. There is a definitely a feeling among this sector that property is simply a pipedream, one that might never come true.

The flow-on impacts in the coming years and decades could be huge and potentially disastrous. It’s time Governments at different levels recognise and respond to the challenges first home buyers face and to work with industry to generate new policies capable of providing optimism and driving first home buyer activity.

One of the key barriers to more first home buyers being able to participate in the market is the difficulty many have in accumulating a deposit.

Perhaps there is scope for some form of Government-backed savings scheme whereby those first home buyers serious about saving a deposit can access tax advantages or even Government contributions to match their own, be it means tested or otherwise. Another potential avenue for Government to investigate might be to enable first home buyers to access their superannuation to contribute to their deposit.

Encouraging investors to refresh their portfolios where it’s appropriate to do so might serve to release more stock to the market. While these ideas may vary in terms of feasibility and practicality, particularly as we prepare for a difficult Federal Budget, the point is clear: something needs to be done.

You might also want to read: The REIA's 10 point wishlist for the federal budget

CATHERINE CASHMORE - Independent market analyst

As we approach the federal budget, once again we have to endure another round of economic nonsense as the Treasurer tries to convince ‘ordinary’ Australians that the country is ‘running out of money’ – facing a ‘budget crisis.’

There is no evidence and no economic wisdom that indicates running a surplus is good for the economy. 

This is something Steve Keen does an excellent job of demonstrating in a recent lecture given in Sydney, in which he shows the inevitable consequence to GDP should our Government attempt to do so.

Economic orthodoxy stubbornly insists on austerity measures to pay down government debt by imposing onerous taxes on its working population.

There are lessons that should have been learnt following the Great Depression in the 1930s. When the government tightens its belt for no other reason than a vain attempt to ‘spruik’ a surplus, it has the unwanted effect of withdrawing money from the economy – leaving the private sector (the working class population) to pick up the slack.

Therefore “repairing the [government] budget” is not putting the fate of  Australians on “the right track.”

It is the government’s responsibility to make sure our monetary system works for the population, by spending enough money into the economy to keep employment and productivity thriving. 

Catherine Cashmore's comment is an edited extract from her column

Tags: 
Federal Budget

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