Federal budget foreshadows housing supply crunch

Renters are on track to be squeezed even tighter as official forecasts in the federal budget point to less supply coming online as home building takes a back seat over the next few years.

Housing supply is already failing to keep up with demand, which is sending rents skyward.

PropTrack senior economist Eleanor Creagh said the outlook for new supply isn't improving, with higher construction costs and labour shortages keeping growth in new housing stock depressed. 

"This is a problem; the supply side of the housing market should be better able to adjust when needed," Ms Creagh wrote in a post-budget analysis.

She said the government aimed to address the supply challenge in the budget with new incentives for build-to-rent developments and more capital for the National Housing Finance and Investment Corporation, which will lower the cost of building new social and affordable dwellings.

The tax cuts for build-to-rent, a type of housing development built specifically for renting out rather than selling, could lead to an extra 150,000 rental properties over the next 10 years.

Ms Creagh said this would add just six per cent to the total rental stock over the decade, and while welcome, it was unlikely to cover the supply gap. 

"Encouraging smaller investors to return to the market is a missing ingredient in the budget," she said.   

St George economist Pat Bustamante agreed the government's housing package in the budget was disappointing given the mismatch between housing demand and supply. 

Mr Bustamante told AAP that, as well as contributing a small amount to the overall supply, build-to-rent would take a long time to come online and the dwellings were typically targeted at higher-income households.

While the federal and state governments have flagged several measures to kickstart new home building in the Housing Accord, including planning rule reforms, Mr Bustamante said urgent action was needed given the compounding pressures in the system.

The budget also contained updated population predictions, with Treasury forecasts expecting a temporary post-COVID migration boost of about 715,000 arrivals over the next two years.

Australian National University demographer Peter McDonald said higher migration was lifting demand for rentals, but it wasn't as dramatic as commonly perceived. 

Professor McDonald told AAP the population increase was largely due to people staying in Australia, and that these people are already housed.

He said international students and working holiday arrivals were returning faster than expected, but neither cohort was directly competing with longer-term residents.

Prof McDonald said students tend to live in high-density student accommodation and smaller inner-city studios, and working holiday arrivals were often living in hostels. 

However, he said some of the wealthier incoming students would add a bit more to demand for rentals favoured by longer-term residents. 

The federal government has tried to take pressure off lower-income renters by boosting the Commonwealth Rental Assistance in the budget, although it's unlikely to be enough given the cost-of-living pressures households are under.

Labor is also pushing hard to pass a $10 billion housing fund that will increase the supply of social and affordable housing, but the bill's progress through parliament has stalled due to the Greens agitating for more ambition.