Property Boom Flatters Victoria’s Troubled Budget
There’s nothing like a property boom to gladden the heart of any state premier.
So Victorian Premier Jacinta Allan must be delighted to see that Melbourne’s median house price has now marched to within $10,000 of its record high.
While these higher prices make it harder for first time buyers to get into the market, they are music to the ears at the State Government, which is wrangling with high state debt courtesy of a slew of expensive infrastructure projects that have gone way over budget.
Stagnant Period Ends Quickly
According to Domain figures, Melbourne’s median house price reached $1,083,043 in the September quarter, up 2.2% from June, with the median unit price at $590,597—just $12,000 from a record high.
Melbourne has been a relatively happy hunting ground for first home buyers, with stagnating prices since the last peak in December 2021 helping to keep it more affordable than interstate rivals.
While those cheaper prices are largely thought to be due to rapidly rising land taxes which caused many investors to sell out, this latest boom also has a lot to do with the Federal Government’s 5% deposit first home buyers scheme which started in October and has since turbocharged first home buyer demand.
Property prices have also been helped by three interest rate cuts this year from the Reserve Bank and also by the increase in the property price cap for the Federal scheme which has been raised to $950,000 in Melbourne.
Property Bounce Already Boosting Budget
Already the recovering volumes in the property market have been playing a big part in contributing to a $4.7 billion improvement to Victoria’s bottom line, with the latest figures showing that the Budget assistance from stamp duty and land tax is still ramping up.
In the recently released report on the 2024-25 financial year, Treasurer Jaclyn Symes revealed that Victoria’s net debt for 2024-25 was $150.9b, $4.7b lower than the figure Treasury forecast in May.
The Budget is also forecast to hit a surplus by 2025-26, which we will believe when it actually arrives.
The more positive result for the past year came from higher valuations on financial assets, windfalls from the Victorian Future Fund and Victorian Homebuyer Scheme and also stronger than expected tax revenue.
Tax Revenue on the Rise
Tax revenue was up $2.1b compared with 2023-24, with a big contributor being an extra $827 million in stamp duty revenue coming from a higher volume of residential home sales.
Jaclyn Symes’ stated plan is to grow the overall Victorian economy so that the massive pile of state debt becomes a smaller share of the total pie, which conveniently avoids the need to rein in spending.
The past year’s $4.7b improvement means net debt was 23.7% of gross state product in 2024-25, 0.8% better than expected.
Budget Better Despite Big Costs
The property tax boosted turnaround in Victoria’s financial position happened despite some large extra costs for the Government, the biggest of which was the extra $1.5b package for Victoria’s hospitals.
That was added in August 2024 after hospitals warned they would need to cut jobs and services under the original budget.
Of course, there is quite some irony in the fact that a Federal Government plan to help first home buyers into the market is boosting State Government revenue – especially when it is accompanied by higher prices which makes property ownership harder.
Even those first home buyers who do get across the line will face much higher interest costs over their loans due to smaller deposits.
It probably won’t be much consolation to know that they also helped to prop up the Victorian Government after its period of poor financial discipline.