The Federal Budget’s hits and misses on housing

In its delivery of the 24/25 Budget, the Federal Government claimed that housing was one of its central focuses, however while there were positive steps, there were also some missed opportunities to initiate meaningful changes that could make a fairer and more efficient housing system in the long term. CoreLogic outlined a number of areas that could have been better addressed, namely in regard to Commonwealth Rental Assistance (CRA), construction and use of existing supply.

While the CRA was increased, it could have been better targeted. CRA increases are traditionally very modest compared to actual rent increases in the private rental market. While the payments vary depending on circumstance, the maximum rate is around $125 per week and the biggest increase under the Budget will be $12.50 per week. The productivity commission noted that in 2019-20 (albeit before rent values boomed), 28% of CRA recipients would still have avoided housing stress without the payment and 27% of recipients were in the top 60% of household incomes – i.e. some of those receiving it were not considered our most desperately in need. While the broad-based boost to the CRA is a reasonably efficient way to ensure those in more vulnerable positions can remain a little more competitive, it could have been optimised to allocate more to those who fall within the most disadvantaged sector of this category.

With an overheated construction sector, too many projects stuck in the pipeline and not enough feasibly-priced labour and materials to deliver them, the Budget could also have given a bigger boost to construction capacity. We are unable to deliver homes at historic average volumes, let alone a target of 1.2 million homes in a five-year period.

The Budget seeks to beef up the construction workforce with around $91 million in training – TAFE and VET vocational colleges, pre-apprenticeship places and fast-tracking skills assessment for 1,900 migrants – which could add to labour supply to the tune of 22,000 workers. However, it’s not clear when these additional workers would be added, with those just embarking on training and apprenticeships potentially taking years to become qualified.

A quicker way to boost productive capacity could be to focus more on already qualified migrant labour through reduced levies for businesses taking on migrant workers and streamlining skills recognition. More investment in research and innovation in construction processes and technologies would also help.

The Budget also missed an opportunity to shape housing demand. Bold tax reform on housing has the potential to increase government revenue and shape housing demand so that our existing housing stock is used more fairly and efficiently at a time when new supply is challenging to deliver. This does not have to mean upsetting rental supply by scrapping negative gearing overnight however there is room to modify the way we tax assets like housing. Chief economist at Westpac, Luci Ellis, suggested a redesign of capital gains tax, which could be constantly discounted by the long-term inflation target to reduce market distortion. While Ellis did not specify this being applied to housing, replacing the generous 50% discount on housing investments after one year could reduce short term resales of investment property that are prompted by short term capital gain windfalls, increasing stability of tenure for renters.

So what did the Budget get right on housing? It’s well documented that increases in housing and rental costs since the pandemic have been especially hard on low-income households. The decline of social housing over time has worn down the buffer between the private rental market and insecure housing, so when rents are rising as strongly as they are now, vacancies are low and demand is high, it’s low-income renters who are increasingly vulnerable. Fortunately, significant funding was allocated to where it’s urgently needed – crisis accommodation, social and affordable housing funding, and a boost to rental assistance for renters receiving other social assistance payments.