Federal budget's future depends on the housing market

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Treasurer Josh Frydenberg recently handed down the 2019-2020 federal budget, which, according to the Property Council of Australia, is heavily dependent on a healthy housing market.

“This is a budget set for growth, but behind every number in the budget is the unknown effect of the housing downturn. The headlines of surplus, infrastructure, and tax relief are welcome, but falling house prices are clearly Treasury’s economic wildcard,” said Property Council of Australia Chief Executive Ken Morrison.

Given the uncertainty of things, the government and the Parliament must have a laser-like focus on the housing sector and be ready with a back-up plan if these forecasts are not met, according to Morrison.

The budget papers highlight the downside risk of more declines in housing prices on dwelling investment and household consumption. If consumption fell by 1% as a result, this would cut a quarter of a percent from GDP growth.

Treasury said that new-housing investment would only grow 0.5% this year, before declining by 7% in 2019-2020 and another 4% in 2020-2021 as existing projects are finished.

“Australia’s housing sector is worth $7 trillion – more than twice the size of the share market – so Treasury [is] right to flag the risks for the economy. It also reinforces our warnings about the impact of changes to negative gearing and capital gains tax, particularly at this uncertain time in the property cycle,” Morrison said.

In addition, the budget emphasises the strong contribution made by the property industry in the pick-up in non-mining business investment — up by 9.7% in 2017-2018 compared to the average annual growth of 1.5% over the previous decade.

Investment in non-residential buildings pushed business investment significantly, including investment in hotels and aged-care facilities, while office-building activity also rose during 2017-2018.

Finally, the budget included a big increase in infrastructure spending, which was also welcomed by the property council.

“The budget delivers a $100 billion investment over the decade to meet the needs of our growing cities and regions, including projects to break urban congestion and improve regional connections,” Morrison said.

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