The 2017-18 Budget and housing affordability

In the 2017-18 Federal Budget, the Treasurer announced a Housing Affordability package that included a range of measures to improve housing affordability.

These measures included an extra $1 billion to establish the National Housing Infrastructure Facility to address infrastructure bottlenecks that restrict housing development, and a $75 billion Transport Infrastructure Package.

Master Builders Australia commissioned Cadence Economics to estimate the economic impacts of these investments.

Our modelling showed that the infrastructure spending would increase the amount of new residential land and support the construction of an additional 93,000 new homes by 2021 - supporting an average of 4,200 building and construction jobs in the economy, each and every year to 2020-21.

Additional housing activity was estimated to add nearly $2 billion in GDP over the next four years, including $4.45 billion in additional building and construction revenue.

The combination of more housing and a reduced transport costs means households are the biggest beneficiary from the package, with every $1 the Government spends under the National Infrastructure Facility component estimated to make households better off by $1.40.

Our analysis is based on a new modelling framework we developed specifically to look at issues relating to housing affordability. This modelling framework is based on the Alonso-Muth-Mills model adapted from the Reserve Bank of Australia's research discussion paper "Urban Structure and Housing Prices: Some Evidence from Australian Cities" (Kulish, Richards and Gillitzer, RDP 2011-03).

The model is combined with our in-house Computable General Equilibrium (CGE) model. This allows us to estimate the indirect and economy wide impacts of the specific housing market impacts revealed by the Alonso-Muth-Mills model in an economy-wide manner.

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