The Federal Government's 2019 budget has been met with cautious optimism by Australia's major housing bodies, due mainly to the unknown impact of the housing downturn.

Treasurer Josh Frydenberg handed down a $7.1 billion surplus in his pre-election budget on Tuesday night, as well as a plan to eliminate Commonwealth debt by 2030. 

Substantial tax cuts and an infrastructure spend of $100 billion across 10 years meant there were some big winners on the night.

2019 Budget - At a glance: 

• A 2019/2020 surplus of $7.1 billion.
• An increased infrastructure spend of $100 billion across 10 years.
• Substantial tax cuts for people earning between $47,000 and $98,000 per year.
• Treasurer describes housing downturn as a "genuine and clear risk".

But Frydenberg was more reserved when it came to addressing the housing market.

"The fundamentals of the Australian economy are sound, but there are genuine and clear risks emerging both at home and abroad," he said.

Related Reading: Housing downturn loses some steam with CoreLogic House Value Index down 0.6% in March

"The residential housing market has cooled, credit growth has eased and we are yet to see the full impact of flood and drought on the economy." 

The Budget papers highlight the downside risk of a further deterioration in housing prices on dwelling investment and household consumption, noting that if consumption dropped one per cent as a result, this would shave a quarter of a per cent from GDP growth.

What they said:

“The headlines of surplus, infrastructure and tax relief are welcome, but falling house prices are clearly Treasury’s economic wildcard." - Australian Property Council Chief Executive Ken Morrison

"Whilst there were no major surprises in the Budget, the measures will lift the brake of economic activity," - Real Estate Institute of Australia President Adrian Kelly

"The timing of income tax cuts on 1 July 2019 combined with a modest growth in wages will see an increase in household disposable income." - HIA Chief Economist Tim Reardon

Property Council Chief Executive Ken Morrison said the government must have a "laser-like" focus on the housing sector going forward.

“This is a budget set for growth, but behind every number in the budget is the unknown effect of the housing downturn,” Mr Morrison said.

“The headlines of surplus, infrastructure and tax relief are welcome, but falling house prices are clearly Treasury’s economic wildcard," he said.

"The Government and the Parliament must be ready with a contingency plan if these forecasts aren’t met.

“Australia’s housing sector is worth $7 trillion – more than twice the size of the share market – so Treasury are right to flag the risks for the economy."

Related Reading: Labor's proposed changes 'adding to market uncertainty', says REIA

According to the treasury, new dwelling investment will only grow 0.5 per cent this year, before dropping by 7 per cent in 2019-20 and a further 4 per cent in 2020-21 as existing projects are completed.

Real Estate Institute of Australia President Adrian Kelly said the budget papers highlighted the importance of economic wellbeing, pointing out that a 10 per cent drop in housing prices reduces real GDP by about 0.5 per cent.

“Whilst there were no major surprises in the Budget, the measures will lift the brake of economic activity," he said. 

“Given the recent falls in house prices and the possibility of further falls, which will be exacerbated if the Opposition’s housing taxation proposals are implemented, it is timely to see the importance of the housing sector to Australia’s economy illustrated."

HIA's chief economist Tim Reardon said Budget would have a positive impact on affordability by improving household disposable income. 

“The timing of income tax cuts on 1 July 2019 combined with a modest growth in wages will see an increase in household disposable income," he said.

“The combined impact will boost household consumption faster than an interest rate cut and assist in offsetting the credit squeeze."

“Maintaining a strong building sector is important not just in terms of employment but also to ensure that adequate new homes are built to avoid a worsening of the affordability challenge."

See Josh Frydenberg's full budget speech here 

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