Budget 2014: Tough love for property market prospects

A key ingredient for the property market, or any market for that matter, is confidence. Fear, coupled with uncertainty, causes the average person to tread carefully, especially when it comes to dipping into their savings and/or increasing their spending.

Australia’s Consumer Confidence has been on a decline since October 2013, plunging us to just below the accepted ‘optimistic’ line at 99.4 at the start of the year. RBA’s decisions over the past months to hold interest rates steady at 2.5 per cent have played a supporting hand in marginally increasing confidence, raising it by 0.3 points to 99.7 at the end of the first quarter (March 2014) – bringing us closer to the optimistic line.

This news brought the property market further hope and anticipation, as the combination of increasing confidence (no matter how marginal), steady interest rates (which means steady standard variable home loan interest), and steady unemployment level (at 5.8 per cent); attributes to a softer correction in the home loan affordability index – certainly softer than I expected.

However, how will the announced Budget impact current hope and anticipation in the property market?

Thankfully, the much talked about ‘debt levy’ – expected to hit those earning as low as $80,000 per annum was not passed. I sighed in relief at this, as first home buyers – those who are ‘brave enough’ to enter the property market – are usually from this income bracket. However, two per cent will be deducted from those who earn $150,000 per annum (and above) for the next three years; equating to $3,000 per year, or roughly one to two months of Australian mortgage payments on average. For households earning $100,000, family tax benefit category B will no longer be applicable once your child hits the age of six or starts school. If you are considered to be ‘youth’, unfortunately there won’t be any income benefits until you have been unemployed for six months.

Although it is early days to see the quantitative impact on property sales and prices, the knowledge of less household income is enough to spark a reaction of ‘tightening our belts’; having a potential multiplier effect on consumer spending and re-evaluating the household budget. For those about to enter the property market, this knowledge will no doubt impact decisions on the ceiling price of what is considered an affordable home, potentially impacting property sales and median prices. This brings the old-age questions – ‘Is this a good time to buy?’ and most importantly, ‘Can I afford to buy?’

For a seller, the question becomes ‘Is this a good time to sell?’, while investors faces two considerations: ‘Is it a good time for me to invest?’ and ‘With all the tax increases, what can society afford in terms of rent?’

Such thoughts and uncertainty will no doubt impact investment property sales and median prices, as well as rental yield. What’s more, the National Rental Affordability Scheme (NRAS) and Housing Help for Seniors program will be ending, further increasing my eyebrow of concern for home affordability.

On the other hand, the Budget does deliver potential good news. The Infrastructure Growth Package is committed to funding major investments, including Melbourne’s East West Link; Adelaide’s North South Corridor; the Perth Freight Link; Toowoomba Second Range Crossing; and Western Sydney road upgrades to support Badgerys Creek. The Queensland Bruce Highway will also receive $11.6 billion ‘love’ from the federal government, further facilitating those of us who commute between the Sunshine Coast and Brisbane.

I’m a fan of infrastructure growth; it signals the increasing ease and ability for people to do business as we become more connected. Infrastructure growth also facilitates the establishment of ‘satellite cities’ and ‘satellite communities’, the likes of Springfield Lakes, Rochedale Estates, and North Lakes here in Brisbane; and brings further economic growth to regional Local Government Areas close to capital cities (Brisbane) – the likes of Moreton Bay, Logan, Ipswich, and Redland Bay. Such growth draws out property players to the property market of this area, where for a standard three-bedroom house, March 2014 data reports approximately 25 per cent lower median weekly rent and 48 per cent lower median house price.

So how will Budget 2014 impact the property market? Although it is early to quantify the impact, my first reaction is that of mixed feelings. Yes, there is some ‘tough love’ – further taxation and elimination of benefits is typical contractionary fiscal policy and is the ‘standard’ government reaction to a Budget deficit. However, in saying that, there is also commitment to infrastructure projects, which facilitates economic growth in outer fringe capital city Local Government Areas and assists in building a stronger economy as a whole.

My forecast for the property market is that the announced Budget will spark immediate reactions – particularly the question of: How much mortgage/rent can we afford now? causing uncertainty and impacting buyers' interest.

The knowledge of infrastructure growth and further connectivity between ‘satellite communities’, outer fringe capital city Local Government Areas, and capital cities will induce interest for properties in those areas, thus increasing demand. We can only hope that there is a matching level of supply, to avoid property prices spiking in these areas. 

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Dr Diaswati (Asti) Mardiasmo

Dr Diaswati (Asti) Mardiasmo

Dr Diaswati (Asti ) Mardiasmo is the National Research Director at PRDnationwide; responsible for delivering property asset related research services to all PRD franchises across Australia and beyond. Asti has completed a PhD in Asset Infrastructure and Management, Master of Business (Research) in Public Administration and Governance, and worked on numerous research projects for government and industry.

Asti has published her work widely in a range on internationally acclaimed academic conferences, practitioner conferences, journals, book chapters, and published reports. Asti is also a sessional academic at Queensland University of Technology, providing lectures and tutorials in subjects such as economics, international business strategy, intercultural communication and negotiation, and entrepreneurship.

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