The news that dominated headlines this week revolved around Federal Treasurer Jim Chalmers handing down the Federal Government’s budget.
I don’t think the budget has much of an impact on investors. Like with interest rates, it’s worth observing but not obsessing over. Having said that, the number one focus of the budget was housing, shortfall in supply and rent hikes. Housing crisis deepens amid high immigration and low supply – ABC News
But here are two thoughts anyway – what I didn’t like, and what I did like (always finish on a positive).
What I didn’t like…
As an Australian, I would have liked to see the Government make some hard decisions around reining in spending.
We are all being asked, and I would say rightly, to do our part, to rein in our spending and accept increased interest rates for the time being.
The Government, on the other hand, is going to spend 10 per cent more than they did the year before, and 37 per cent more than it was spending before the pandemic.
This, at the same time Government debt has ballooned to nearly $1 Trillion, roughly 50 per cent higher than it was before the pandemic.
I think Jim should read my book Bulletproof Investing and contemplate bulletproof tip number 3 which reads:
Spend on what you need, not what you want
Identify all the things you spend money on (expenses) and categorise them as either a ‘need’ or a ‘want’. If the expenses exceed your income, it’s time to get rid of some of the ‘wants’. If you’re struggling, cancel all your cards and order new ones; this will help kick-start the process.
What I did like…
As an investor, there was one area of detail in the budget that has me particularly excited.
The Government is forecasting we will welcome just under 1 million net overseas migrants over the next 3 years.
When you throw in the net increase of births over deaths, Australia will grow by 1.3 million people – roughly 1 whole city of Adelaide(!) – in the next 3 years.
We will be bringing in a whole city of people at the same time our rental vacancy rate is 1.1 per cent, and predicted to fall even further. There are literally only 32,814 vacant houses in Australia today according to SQM Research.
We simply are not going to have enough houses – we will be at least 100,000 short.
So I ask, how could rents possibly not continue to increase by 10 per cent per annum in the foreseeable future?
And how could house prices not continue to go up for the foreseeable future?
Interest rates will come down again, and when they do there will be another boom in the property market. That’s what happens when we don’t build enough houses, and precisely what has happened to property prices for the last 50 years, especially in the more affordable segment of the market The top 50 Brisbane suburbs where prices have skyrocketed this year may surprise you (domain.com.au)
The rental market is tighter than we have ever seen, which not only adds urgency to the need to build more houses to rent, but also gives you as an investor the confidence that demand will continue to outstrip supply for the foreseeable future.
I think every Australian should be building a rental property today. It’s a win-win; we help supply the housing our country desperately needs, and we will build our wealth in the process.
