How the end of government stimuli will impact the property market

24 March, 2021

Australia is now no longer in recession and the economy is powering ahead. But there are lingering concerns the economic recovery could be interrupted when record levels of federal government stimuli, designed to buffer the economy through the COVID-induced recession, expire at the end of the month. 

The latest Australian Bureau of Statistics figures showed the unemployment rate fell far more than expected in February to hit 5.8%, while job advertisements and business hiring intentions are particularly high. In some locations, particularly regional Australia, there is even a shortage of workers. Importantly, youth unemployment, which has been stubbornly high up until recently, is now shifting downwards.

The country is now in a very different position compared to September 2020, when stimuli began to be pulled back, but is there still cause for concern?

What financial support schemes are ending?

The JobKeeper scheme will be wound up at the end of March 2021, with about one million people coming off the wage subsidy program.

Additionally, the $150 (per fortnight) coronavirus supplement payment, currently available to those on income support payments like JobSeeker, will also expire at the end of the month. Unemployed Australians will receive an extra $25 a week from 1 April 2021 under changes to the JobSeeker base rate.

The HomeBuilder package, designed to keep the building industry afloat, will also wind down on 31 March.

The HomeBuilder scheme, designed to support the construction industry, will expire 31 March.

At a macroeconomic level, this is unlikely to have a significant impact on economic growth, which is now being boosted by very low interest rates, high levels of wealth built up during the pandemic, the vaccine rollout and a continued opening of the economy and a return to normal life.

What sectors will be impacted most?

While at a macro level the impacts will be minimal, there are some sectors of the economy that will be hit when stimuli ends.

The education sector will be challenged for some time, particularly given that foreign students are yet to return. For industries and regions that are dependent on overseas visitors, there is still no set date for when conditions are likely to improve.

Victoria is also taking longer to recover from the health crisis given the extended lockdown in 2020, and although the unemployment rate is now on par with NSW, hospitality businesses, particularly in inner Melbourne, are still not recovering at the same rate as in other parts of the country.

Hospitality businesses in inner-Melbourne are not recovering as quickly as those in other capital cities.

Will the property market take a hit?

For the housing market, the overall impacts are likely to be minimal. House prices are moving quickly upwards now and even in areas where rents are dropping, values are increasing.

Additionally, investors are returning to market and banks are lending more easily.

The rental market, which bore the brunt early on in the pandemic, has mostly returned to normal, particularly for houses.

On the flip side, in some regional areas and areas exposed to mining such as Perth and Darwin, we are starting to see early signs of a rental crisis as rents surge and rental stock shrinks.

While overall the housing market will see minimal impacts as a result of the wind down of stimuli, some housing types will undoubtedly be exposed.

The end of government stimuli is expected to have minimal impact on Australia’s property market.

People dependent on JobSeeker and JobKeeper will be worse off, particularly those who are located in areas where there is currently a rental housing shortage. In areas where there is an oversupply of rental housing, we may see a hit on rental levels, which could impact landlords.

HomeBuilder has been very successful in driving new housing development and the end of this will likely lead to a large drop in new housing approvals.

What next?

As we head out of the tough conditions that COVID created, governments will need to work out ways to pay back the very high level of public debt spent to prevent a much more severe economic outcome.

The stimuli provided over the past 12 months tripled public debt to about $2 trillion. At some stage this year, it is likely tax hikes will become a reality in a bid to bring the debt down.

Nerida Conisbee | Realestate.com insights