2025 Federal Budget: A Mixed Bag for Housing Supply?

The 2025 Australian federal budget places an emphasis on addressing the nation’s housing supply challenges, introducing a range of measures designed to increase affordability and availability. However, reactions to these initiatives have been mixed, with some supporting the measures overall while others argue that they fall short in addressing the structural reforms needed to solve the housing crisis. Here is our assessment of the key initiatives and their implications.

HOUSING BUDJET MEASURES AND THEIR IMPLICATIONS

National Housing Accord and Supply Targets

The budget reaffirms the government’s commitment to the National Housing Accord, aiming to build 1.2 million new homes over five years to alleviate supply shortages.

Implication: This ambitious target seeks to stimulate the construction sector, provide more housing options for Australians, and moderate price pressures over time. However, it is becoming increasingly unlikely that the target will be met. The budget notes that only 45,000 homes have been built under the Accord so far, but forecasts that supply “will accelerate as the government’s initiatives take effect.” The housing shortfall is projected to range between 260,000 and 460,000 homes, with Australia currently experiencing an annual deficit of more than 70,000 homes. This shortage is further compounded by the government's population projections, which suggest continued strong population growth with an estimated 1.8 million additional people over the next five years.

Support for Social and Affordable Housing

Continued investment through initiatives like the Housing Australia Future Fund (HAFF) and the Social Housing Accelerator aims to support vulnerable populations and address the growing need for affordable rental and ownership options.

Implication: These programs focus on providing housing for those most affected by the housing crisis, improving access to social and affordable homes. While this is a critical step, more efforts are needed to expand affordable housing options on a larger scale.

"Help to Buy" Scheme Expansion

The budget expands the "Help to Buy" scheme, increasing property price limits and income caps to make it more accessible to first-home buyers.

Implication: This measure aims to reduce deposit requirements and mortgage burdens for first-time buyers, potentially stimulating demand for new and existing properties, particularly in segments popular with first-home buyers. However, only a small share of first-home buyers are expected to benefit from the expanded scheme. The net impact remains unclear, and it is possible that stimulating demand in a limited supply market could drive prices higher.

Foreign Buyer Restrictions

A two-year ban has been imposed on foreign buyers purchasing established dwellings, unless an exception applies. The limited exceptions include investments that significantly increase housing supply or support the availability of housing supply.

Implication: This measure aims to reduce competition for existing housing stock, freeing up more properties for Australian buyers, while encouraging foreign investment in new housing developments. However, critics point out that foreign buyers currently account for only a small portion of the market, particularly at the high end. The ban may also hinder the delivery of new homes if it prevents overseas builders from purchasing greenfield land, as they contribute to around 10% of detached homes in Australia. Foreign investor taxes over the past decade have led to a decline in new apartment construction, further complicating the housing supply issue.

Investment in Infrastructure and Construction

The budget allocates funding for infrastructure projects to support new housing developments and initiatives to boost the construction workforce. The Housing Construction Apprenticeship stream will offer grants of up to $10,000 for eligible apprenticeships, with additional funding for employers in priority occupations.

Implication: These steps are essential for ensuring that new housing supply is well-connected and sustainable, and that there is an adequate workforce to meet construction needs. While positive, these measures represent a small contribution in the broader context of the housing crisis.

Support for Prefabricated and Modular Housing

$54 million has been allocated to support the development of prefabricated and modular housing methods. The focus is on creating state-based programs for new technologies, increasing factory-built homes' quality, and establishing a national certification process.

Implication: The push for prefabricated and modular housing aims to accelerate the construction of new homes and reduce production costs, ultimately slowing the growth of new home prices. While these technologies are an important part of the solution, adopting them will not be sufficient on their own. New construction projects still need to receive approval, gain developer support and secure financing.

Retention of Tax Concessions for Property Investors

The budget retains negative gearing and capital gains tax (CGT) discounts for property investors.

Implication: Views on the effectiveness of these measures vary. Critics argue that these tax concessions stimulate demand, driving up prices and reducing affordability. However, supporters contend that these incentives are crucial for increasing supply and moderating rents. Ultimately, a considered approach is needed to lower the multiple taxation and regulatory hurdles impacting housing.

OVERALL IMPLICATIONS

The 2025 budget reflects a continued, multi-pronged approach to tackling the housing crisis, focusing on both supply and affordability. While the government's commitment to increasing housing supply is vital for long-term affordability, significant challenges remain.

While the budget's measures are commendable, a more comprehensive approach is needed to effectively address the housing crisis, both in the short and long term. This should include further support for new home construction, incentives for state governments to reduce taxes and regulatory barriers, initiatives to expand land supply, addressing labour shortages and delays in planning approvals. A key focus should also be on reforming and streamlining state planning and regulatory systems.

The effects of these measures will become clearer over the next few years and will be influenced by national and international factors. In the short term, interest rate reductions may help developers increase supply by improving their borrowing capacity. However, this could also lead to higher demand, exacerbating the housing shortage if supply does not keep pace.

The disconnect between policy intentions and actual housing delivery remains a challenge for both government and the private sector. While the private sector is eager to contribute to resolving the crisis, translating policy goals into tangible outcomes will remain a significant challenge.