Stage 3 tax cuts = property price boost

Several leading property experts have released home price forecasts for the new financial year.

All seem to agree that we’ll see more restrained growth than in the last 12 months, when an impressive 8.3% increase in values was seen across the five major capital cities.

Domain is predicting 3 to 7% price growth for houses and 3 to 5% growth for units in 2024-25, while REA Group’s PropTrack is predicting 3 to 6% growth for capital city dwellings.

KPMG is even more optimistic.

The global accounting giant believes Australian house prices will rise nationally by 5.3% just over the next six months, while apartments will see an average rise of 4.5% by the end of December.

The Stage 3 tax cuts

All these forecasts seem remarkably upbeat, given the current high interest rate environment, an ongoing cost-of-living crisis and the fact that, per capita, Australia is in recession.

While a continuing housing supply shortage at a time of increased demand from strong migration continues to be the major factor putting upward pressure on property prices, most analysts also list the expected price boost from the Stage 3 tax cuts, which deliver tax savings to an estimated 13.6 million Australians.

“Over the next financial year, the introduction of Stage 3 tax cuts and projected interest rate cuts have the power to further entice buyer demand while supply from new dwelling commencements and completions are expected to remain low,” PropTrack’s Director of Economic Research, Cameron Kusher, explains.

“As of 1 July, Stage 3 tax cuts will mean more money hits Australian households, lifting borrowing capacity and, therefore, buying power across the country,” Domain’s Chief of Research and Economics, Dr Nicola Powell, says.

So, given most Australian households with a mortgage borrow the maximum banks will allow, just how much more will wage-earners be able to borrow because of the Stage 3 tax cuts?

Increased borrowing capacity

It’s estimated the amount of money Australians can borrow has fallen by about 30% since interest rates started rising in May 2022.

However, comparison website Ratecity.com.au believes this will ease somewhat following the Stage 3 tax cuts.

Their research shows for a single person on a $100,000 income (before tax), “their total borrowing capacity could potentially increase by more than $20,000 once the tax cut takes effect.” 

“For a family earning $150,000, their borrowing capacity could increase by almost $30,000,” RateCity’s Eden Radford says.

That’s a significant increase of 4.5% and 5.1%, respectively, in borrowing capacity.

More choices for buyers?

Does this translate into more choices for buyers in the property market?

Dr Diaswati Mardiasmo is the Chief Economist at PRD Real Estate.

She examined house and unit sales for 2024 in the major capital cities.

For example, she found that a person earning $90,000 would have been able to afford only 5.2% of the houses for sale in Sydney before July 1st.

When the Stage 3 tax cuts kicked in, and with increased borrowing capacity, they’d be able to afford 6.4% of houses—still a relatively small number in Australia’s most expensive property market.

“In comparison, a person earning $140,000 will see their access increase from 30.5% to 37.3% in the Greater Sydney house market,” she says.

On the other side of the country, someone on a salary of $90,000 is now in a position to consider buying one of 70.8% of the apartments for sale in Perth, up from 67.6%.

The take-out

“On paper, the calculation (of greater borrowing power and more properties to choose from) is quite impressive,” PRD’s Dr Mardiasmo says.

However, she thinks the main effect might actually be on buyer confidence, raising “a home buyer’s hopes and positive sentiment.”

“Combined with a stable interest rate, currently at 4.35%, and the outlook for stability (both in employment/wage growth and cash rate); the Stage 3 tax cuts might just be what is needed to turn a cautious buyer into a signed contract,” she says.

One thing is clear.

More confident buyers in the property market usually means vendors are more likely to be confident of achieving a decent sale price.

That means they are less likely to sell at a perceived discount, putting more upward pressure on prices.