Budget 2018 – Impact on the Property Market
9th of May, 2018
Waking this morning to the news of the budget gave me a laugh. I opened an email from The Real Estate Institute of Australia with a link to their press release titled “Budget benign for housing: REIA”. You can read it for yourself here: Media Release but the first line says it all “The 2018 Budget had no measures that specifically address housing supply and affordability, according to the Real Estate Institute of Australia (REIA)”.
However, as students of The 18 Year Real Estate and Economic Cycle we see this budget differently.
A whopping $75 Billion!
YES, you heard it correctly, $75 Billion of transport infrastructure. This will drive economic activity and will be captured in the one place – land values.
It will create jobs to build the infrastructure and will expedite the movement of people, goods and enhance the provision of services throughout the nation. Land in close proximity to the infrastructure will increase in value and past studies in major cities around the world quantify that a 4.5 times multiplier applies.
You as the land owner will benefit.
So, to say this is a benign budget for the property asset class is not accurate for those who are fortunate enough to have come across the work of educators like Calnan Flack and Phillip J Anderson.
The map below from Commsec details the spread of the spend. Notice the majority of infrastructure is in the capital cities, especially focused on Sydney, Melbourne and Brisbane.
$3.5 billion in funding for The Roads of Strategic Importance initiative to upgrade existing roadways. This will facilitate the movement of goods and people and resulting a significant increase in economic productivity.
The breakdown of what each state and territory will be receiving from The Roads of Strategic Importance initiative is:
$1.5 billion for a Northern Australia Package for Queensland, the Northern Territory and Western Australia;
$400 million for Tasmania;
$220 million for the Bindoon Bypass in Western Australia;
$100 million for the Barton Highway upgrade for New South Wales and the Australian Capital Territory; and
$1.3 billion for future usage.
Overall this impressive infrastructure spending spree is economically overdue and welcomed by the major beneficiaries, land owners. It will create jobs to build it and maintain it into the future. It will facilitate increased economic activity.
All this which be captured in increased land values.
If there are approximately 15 million tax payers in Australia, the cost of the $75B is $5000 per tax payer. As a land owner within close proximity to any of these infrastructure initiatives, you will receive capital gains well in excess of this figure.
Just the increase in rental income from the higher demand due to the benefits derived from increased productivity that will drive demand will be a significant windfall for land lords.
This is the Economic Rent, or as our colleagues at Calnan Flack have called it “The Effortless Advantage” in action.
The larger cities will also see a boost through the $1 billion Urban Congestion Fund to reduce the level of urban congestion. The breakdown for each state, territory and regional areas is as follows:
New South Wales
$1.5 billion is being contributed towards new projects, which include
- $971 million for the Pacific Highway Coffs Harbour Bypass;
- $400 million for the Port Botany Rail Line Duplication;
- $155 million for the Nowra Bridge;
The Commonwealth and NSW governments will be equally funding the first stage of the North South Rail Link in Western Sydney; and
The construction of the Western Sydney Airport will commence this year with up to $5.3 billion of government equity being contributed as part of stage one, with approximately 28,000 direct and indirect jobs to be created as a result by 2031.
Victoria
$7.8 billion for new major projects, which include:
- Up to $5 billion for the Melbourne Airport Rail Link;
- $1.8 billion for the North East Link;
- $475 million for Monash Rail;
- $335 million for electrification for the Frankston Line to Baxter;
- $140 million to improve congestion;
- $132 million to complete the duplication of the Princes Highway East from Traralgon to Sale;
- $50 million for Geelong Rail Line upgrades; and
$9.3 billion for the Melbourne to Brisbane Inland Rail project has started and is estimated to start this year, with an approximate 16,000 direct and indirect jobs created during construction.
Queensland
$5.2 billion for new major projects, which include:
- An additional $3.3 billion for upgrading the Bruce Highway;
- An additional $1 billion for the M1 Pacific Motorway;
- $390 million for the Beerburrum to Nambour Rail Upgrade;
- $300 million for the Brisbane Metro project; and
$170 million for the Cunningham Highway — Yamanto to Ebenezer (Amberley Interchange).
Western Australia
$2.6 billion for new major projects, which include:
- An additional $1.1 billion for the METRONET rail project;
- $944 million to tackle congestion in Perth; and
- $560 million for the Bunbury Outer Ring Road.
South Australia
$1.8 billion for new major projects, which include;
- $1.4 billion for North-South Road Corridor projects;
- $177 million for the Regency Road to Pym Street section;
- $220 million for the Gawler Rail Line electrification; and
- $160 million for the Joy Baluch Bridge.
- $1.4 billion for North-South Road Corridor projects;
Tasmania
$461 million for the Bridgewater Bridge replacement; and
An additional $59.8 million for the Tasmanian Freight Rail Revitalisation package.
Australian Capital Territory
$100 million for the Monary Highway upgrade.
Northern Territory
$280 million for upgrades to the Central Arnhem Road and the Buntie Highway.
Regional infrastructure
$200 million will be injected for a third round of the Building Better Regions fund in order to support regional infrastructure and community investment; and
$272 million is being added to the Regional Growth Fund and is predicted to create more jobs.
Queensland’s Great Barrier Reef was mentioned in particular, which includes:
$535.9 million being given to it in order to support the World Heritage-listed site and the jobs it creates,
$443.8 million to partner with the Great Barrier Reef Foundation to support the reef, $200.6 million to improve water quality,
$100 million towards coral restoration and adaption research,
$58 million towards programs for the crown-of-thorns starfish,
$40 million towards Reef health monitoring and reporting; and
$44.8 million for plan delivery and engagement with Traditional Owners and the broader community for reef protection.
So the Cycle continues and Your knowledge of the cycle is invaluable in understanding the future impact of the outcomes from the 2018 Budget.
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IMPORTANT NOTICE
Disclaimer: Any opinions or recommendations expressed here do not purport to Financial Advice but rather should be considered General Advice and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. Should Financial Advice be sought, we suggest you seek such advice from an appropriately qualified advisor. Any growth rates, yields, rental income, tax rates, interest rates, depreciation rates, inflation rates Dividends per Share (DPS) and Earning Per Share (EPS) etc shown are estimates only and should not be used as a guide to future performance. Past performance is not necessarily a guide to future performance and should not be relied upon for this purpose. Authorised Representative of PGW Financial Services Pty Ltd – AFSL 384713 ABN 15 123 835 441.
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