At 7.30pm last night, Treasurer Jim Chalmers handed down the long-discussed Federal Budget 2023-24.

Yet will the Budget plans sink or assist an already struggling real estate market?

Listing Loop takes a look.

Federal Budget 2023-24: overall highlights

• Surplus of $4.2 billion in FY2023 - the first surplus of a federal government in 15 years, and a $41 billion turnaround from this government's October 2022 forecast
• But surplus will quickly give way to $13.9 billion deficit in FY2024
• $14.6 billion cost‑of‑living plan is key Budget factor and will
  

1. Provide help with power bills
2. Bring down out‑of‑pocket health costs
3. Support vulnerable Australians
4. Create more affordable housing and
5. Boost wages

Australia's economic outlook: Chalmers

"The global economy is slowing due to persistent inflation, higher interest rates, and financial sector strains.

"Outside of the pandemic and the Global Financial Crisis, the next two years are expected to be the weakest for global growth in over two decades.

"Our economic growth is expected to slow from 3¼% in 2022–23 to 1½% the year after, before recovering to 2¼% in the next.

"(But) unemployment is expected to remain low by historical standards – 4¼% in 2023–24 and 4½% the year after.

"Inflation remains our primary economic challenge but our policies to ease the pressure on households will take ¾ of a percentage point off inflation in 2023–24.

"Inflation is expected to fall from 6% this year to 3¼% next year, returning to the RBA’s target band (2-3%) in 2024–25."

"Wages growth for 2023–24 is now forecast to be 4% .... (with) an earlier and stronger return to real wages growth forecast for 2023–24."

Federal Budget 2023-24: real estate highlights

• Rental relief: Commonwealth Rent Assistance (CRA) to increase 15%
• First-home buyer (FHB) help: Home Guarantee Scheme (including First Home Guarantee, the Regional First Home Buyer Guarantee, and the Family Home Guarantee) expanded 
• Low-income support: $2 billion spent on building extra social and affordable housing 
• Build-to-rent (BTR) sector: new tax breaks for BTR projects cutting managed investment trust withholding tax from 30% to 15%

NB: no stamp duty reforms were mentioned or supported 

Federal Budget 2023-24: what it means for homeowners

Business columnist, Robert Gottliebsen, described the Federal Budget as a "sickening experience" for homeowners and particularly the 1.2 million Aussies experiencing mortgage stress.

And, especially coming after (almost) 11 consecutive cash rate rises in 12 months, and with more expected in the future.

Mr Gottliebsen said there was a "real risk of error" with Dr Chalmers' forecast that the CPI will fall from 6% to 3.25% in FY2024, despite a 4% rise in wages.

"For this to be right, there must be lots of labour shedding, which in turn will add to the tension of those with big mortgages who rely on two incomes," Mr Gottliebsen said.

Economics writer, Patrick Commins, noted that mortgage holders were doing life a lot tougher than renters with an average family mortgagee now needing to find an extra $12,500 in their household budget to make ends meet.

This is an increase of almost 12% in the year to March 2023, Mr Commins explained, based on the Australian National University’s Cost of Living index, which includes the impact of 10 rate rises on interest payments (correct at the time of its release) – unlike the official ABS consumer price index figures.

"At the other end of the scale are renters, where cost of living has increased by 6.3%," Mr Commins said.

"Despite talk of a housing crisis and double-digit increases in asking rents, the vast bulk of existing rents are (so far) moving much more slowly – at 4.9% in the year to March. 

"That has kept housing cost inflation much more subdued for renters than for indebted homeowners."

From our end too, the Listing Loop team can't find much for current homeowners to be excited about with the Federal Budget.

But the Budget's cost-of-living plan may take some sting out of mortgage stressors' tails.

Federal Budget 2023-24: what it means for home buyers

For FHBs, and non-FHBs who haven't bought a property in 10 years, the Federal Budget's plan to expand the Home Guarantee Scheme is a - relatively - good one.

The expansion will allow any two applicants - whether they're siblings, parents and their children, or just friends - to apply for the scheme.

Single legal guardians of dependents may also now qualify for the Family Home Guarantee.

Then there's the federal government's plan to build one million extra homes over five years from 2024, through the Nation Housing Accord concept first introduced in the government's October 2022 Budget.

But is all of this enough to supply the crucial extra housing needed for Australia, especially with the migration boom putting more pressure on current supplies?

REA Group senior economist, Eleanor Creagh, notes that property affordability is now at its worst level since the 1990s on some measures, and repayments are now very high, relative to history in real terms.

"These (current) conditions are challenging for first-home buyers, for whom the most significant hurdle to home ownership is the deposit burden," Ms Creagh explained.

However, she added that with the Home Guarantee Scheme allowing borrowers to purchase a home with just a 5% deposit, borrowers are already taking out higher loan-to-valuation ratio mortgages.

"This means price falls of as little as 5% would take the borrower underwater – owing more on their mortgage than their home is worth," Ms Creagh said.

Meanwhile, CoreLogic head of research, Eliza Owen, believes the criteria expansion may make such policies fairer - but at the same time, it may not make them more effective.

"The relatively high-income thresholds around the First Home Guarantee, in particular, may help people into housing faster (but) they would have achieved home ownership anyway, limiting more equitable home ownership across income distributions," Ms Owen explained.

She added however that if interest rates decline, the schemes would "make more sense for hopeful homeowners" as these people compare the cost of taking on more mortgage debt with the ongoing costs of renting.

Federal Budget 2023-24: what it means for investors

As far as we can tell, yesterday's Budget didn't hold much help for property investors - or at least, not the average, small-time "Mum and Dad" investors.

Ms Creagh described the Budget flaw in not encouraging smaller investors - but rather, high-priced BTR developers - as a "missing ingredient".

"Although advancing the build-to-rent sector is a welcome measure, policy that aims to incentivise small-scale investment via “mum and dad” into the housing market, thus adding to rental supply, appears to be missing," she said.

Again, however, the Budget's cost-of-living plan may assist property investors in the coming months.

Federal Budget 2023-24: what it means for renters (and low-income earners)

Of all the real estate pointers noted in the Federal Budget, it was renters and those in need of social housing, who were arguably assisted the most.

In the largest such increase in more than 30 years, CRA aid will increase 15%.

"Given the one in three households that rent are more likely to be younger Australians, on lower incomes, with less wealth than owner-occupiers, and typically lower savings buffers, the measures will come as some relief," Ms Creagh said.

This being said, in reality, the 15% increase mean that tenants will only receive an extra $31 cash per fortnight - at the most.

In this way, Ms Owen noted that while the Federal Budget gave renters some level of recognition, low-income households in the private rental market would be disappointed. 

"Even for those who qualify for CRA, the increase in payments is
modest relative to the broader increase in rents across the market," Ms Owen said.

Ms Creagh was also cautious about the $2 billion plan to provide more social and affordable housing.

"The increased funding for social and affordable housing will help provide stable and secure housing options for those who need it," she said.

"But while social housing is a good safety net for those at high risk of long-term homelessness who can’t access private housing, it is an expensive solution."

So, what next?

All eyes are now looking towards the Reserve Bank of Australia's (RBA) next cash rate announcement in June.

Economists are largely undecided on whether the RBA will choose to hit the stall button, as it did in April for just one month, or the Budget will promote another increase, as the most recent inflation data largely did this month.

Either way - and at the risk of ending with gloom - we're tending towards Ms Owen's train of thought that "we have much further to go in creating a fair, secure and affordable housing market for Australians".

Or, as Ms Creagh puts it: "The only long-term solution to housing affordability is to build more of the right homes in the places where people want to live."

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