Borrowing power: Sydney suburbs stage 3 tax cuts will make affordable again

Tax relief is set to increase how much home seekers can spend, making many areas affordable again. See what you’ll get from the cuts and where you can afford to buy a Sydney home now

Home seekers are set to get the biggest boost to their buying budget in nearly three years, with some purchasers due for a $40,000 increase to their spending power next financial year.

The gains will be the result of tax cuts, which will make buyers on a range of income bands eligible for higher valued loans, according to Canstar Analysis provided exclusively to The Daily Telegraph.

“It may not seem like a huge amount in Sydney because prices are so expensive but it will make a difference. It means there will be more suburbs buyers can afford,” said Canstar analyst Steve Mickenbecker.

He added that Labor’s overhaul of stage 3 tax cuts taking affect July 1 will spur the biggest improvement in home seekers’ borrowing capacity since interest rates were cut to record lows during the pandemic in 2021.

Among the biggest winners will be dual income home seekers earning the average NSW wage.

Federal Treasurer Jim Chalmers announced the tax cuts would apply from July 1. Picture: Damian Shaw

Such a couple – earning about $185,000 a year combined – would see their purchasing power grow from $1,077,500 currently to $1,118,750.

This assumed they had a 20 per cent deposit, paid a typical interest rate being offered by lenders and had household expenses at the national average.

The improved budget would mean the average dual income couple would be able to afford about 39 per cent of all Sydney house stock, up from about 35 per cent currently.

Close to 78 per cent of Sydney unit stock would be affordable, up from 74.2 per cent currently.

Single borrowers on an average income would get about $20,000 added to their purchasing power due to tax cuts.

Tax cut changes for NSW buyers. Source: Canstar; assumes 20% deposit, loan at 6.87% and annual expenses of $21,840 for a single and $31,670 for a couple - the standard benchmark banks use to assess borrowing power.

The typical couple where one partner worked full-time and the other part-time would get an additional $29,000 to spend on housing.

A dual income household on a higher than average income of $240,000 a year would get $51,000 in extra spending power.

How will a tax increase my borrowing power?

“Single income borrowers won’t get as big a change. It’s dual income couples who will get the most out of the tax breaks,” Mr Mickenbecker said.

“On one hand, it’s not going to change anyone’s world, but on the other it will mean having a bit more firepower at auction. It will help people keep up a bit more with the big price rises we’ve seen.”

Mr Mickenbecker added that improvements to purchasing power were unlikely to dramatically push up housing demand across the market.

He noted it would not have the same effect that lower interest rates had on the market back in 2021, when prices exploded at the second fastest rate in Sydney’s post WWII-history.

How much more you can buy with stage 3 tax cuts

Additional analysis of PropTrack showed tax cuts would mean a range of Sydney suburbs that were once out of reach for the average dual income couple would become affordable again.

This included units in northern beaches suburbs North Manly, Collaroy and Avalon Beach if paying a sum close to the current median price.

Other unit markets that would be accessible again were Blakehurst and Sylvania, in Sydney’s south.

Suburbs where houses would be back within budget of the average dual income couple were Prestons, Casula, Rosehill, Seven Hills, Prospect and Fairfield Heights, among others.

PRD economist Diaswati Mardiasmo said tax cuts could have a psychological effect on buyers.

“It will improve confidence,” she said. “Even if it may not seem like a big improvement, it’s at least something. It does give people a sense of hope they wouldn’t have had back when rates kept go up and up.”

How income will affect borrowing power

Some home seekers said the tax cuts won’t be enough.

Sydneysider Peter Yannopoulos is on the hunt for a new home in Berry and said he felt coming tax cuts would not give his family as much of a boost as higher- and lower-income buyers.

“I feel like it usually benefits the mega wealthy or people who are struggling … we don’t really benefit,” he said, noting that moving out of Sydney will improve the calibre of homes they can buy more than tax cuts.

Home seekers Peter and Nadia Yannopoulos, with son Louka, said they were unsure of what to make of the tax relief. Picture: Justin Lloyd.

“We feel at the moment it’s a no-brainer to pick up and go. We are escaping the Sydney rush,” he said.

The family’s selling agent Ben Horwood of Horwood Nolan said tax cuts may encourage some buyers but the direction of interest rates would probably make more of an impact.

“(Cuts) will make a difference for a first-home buyer trying to get into the market, which is good,” he said.

“Once people get some confidence of where interest rates are going to sit by the end of the year or next year, then the market will come roaring back.”

This week a global Demographia study showed Sydney upheld its title as the world’s second least affordable city housing market – the 15th time in 16 years the city has been among the top three most challenging markets to buy into..

Sydney was deemed “impossibly unaffordable”, with prices 13.8 times the average income, according to the International Housing Affordability report.

The report, which examines housing markets across the English-speaking world, compared 94 areas across Australia, Canada, Ireland, New Zealand, Singapore, United Kingdom, Hong Kong and the United States — and found only Hong Kong had a worse ratio of prices to incomes than Sydney.

Ms Mardiasmo said Sydney home seekers should realise any small improvements in their purchasing power – no matter how incremental – should be welcomed considering how difficult scaling the Sydney property market has become.

Tax cuts have coincided with a dramatic increase in property listings across Sydney, which experts added may throw home seekers an additional lifeline by reducing buyer competition.

Originally published as Borrowing power: Sydney suburbs stage 3 tax cuts will make affordable again